Growth in the 'Sand States'
Arizona, California, Florida, and Nevada are the states where homeowners enjoyed the most extreme runup in prices—until the subprime crisis sent the whole housing industry into its sharpest contraction in decades. Now these four states, which were most hurt in the real estate collapse over the past five years, are taking the lead in job creation. They added 222,100 jobs from August through December, accounting for 28 percent of the increase in U.S. employment in that period, according to Department of Labor figures. Their strong performance will likely continue, say economists at Moody’s Analytics and IHS Global Insight.
Households in the “sand states,” where homes have lost on average half of their value since 2006, have cut debt and bolstered their net worth, says Jan Hatzius, chief economist at Goldman Sachs. Their stabilization may signal a broader improvement by U.S. consumers that may bring on faster job growth. “There has been a whole lot of balance sheet improvement,” says James Paulsen, chief investment strategist for Wells Capital Management. “Even the places that were ground zero for the 2008 financial crisis are coming back to life. Things are starting to pop a little again.”
The broadening recovery is helping local industries, including gambling in Nevada, tourism in Florida and Arizona, and social networking companies in California. Ramar Way, 39, had five children under 10 when he started collecting unemployment benefits two years ago in Florida, where the maximum weekly check is $275. In January, he was hired to operate a front-end loader as part of a Port of Miami expansion project, making $18.62 an hour. “I’m so happy,” Way says. “This really helps me out.”
Hatzius says that California’s job market is improving fastest among the four states and that Nevada is the laggard. That’s not surprising, since California’s economy is much more diverse than Nevada’s two-trick economic pony of gaming revenue and construction. Though it has come down from its peak of 14.9 percent, Nevada’s unemployment rate remains the country’s highest, at 12.6 percent. In the last four months of 2011, California’s jobless rate fell from 12.1 to 11.1 percent.
While the four states still have higher unemployment than the U.S. average, they will make quicker job gains this year, forecasts Moody’s. And while home prices keep falling nationally, residential investment, including homebuilding and renovations, contributed to growth in the fourth quarter, government figures show. It had subtracted from growth from 2006 to 2011.
Commercial real estate is faring better, too. Technology companies are scooping up office space in the Financial District and South of Market areas of San Francisco to accommodate their expanding workforce. LinkedIn, Salesforce.com, and Macys.com were among technology companies that together leased more than 1 million square feet in the city in January and February, according to Mayor Edwin Lee’s office.
“It is a complete war for talent every single day,” says Mike Guerchon, senior vice president of global employee services at Riverbed Technology, the San Francisco-based maker of computer-networking products. “What our recruiters tell me is that every engineer that we’re talking to has three or four other offers from other companies.” Skilled workers are also in demand in Florida, where the unemployment rate, now at 9.6 percent, has declined from 10.9 percent a year earlier. “We’re getting encouraging indicators that the job market is starting to open up,” says Bennett Mazor, a staffing consultant for TransHire, a recruiter in Fort Lauderdale.
In Las Vegas, casino gambling revenue rose 3.6 percent in December, bringing the full-year gain to 5.1 percent for a second annual increase. “As the national recovery improves, more vacationers are returning and spending money in Vegas,” says Dan White, a Moody’s economist. That’s helping Heather Parks, who says her information-technology consultancy, Healliam, is having to turn away customers after weathering a “huge dry spell” last summer. Most of her customers are casinos, and her business has benefited from the outsourcing of technology work, she says.
Arizona started to outpace the U.S. economy in last year’s second half, says Daniel Culbertson, another Moody’s economist. “Health care, education, and professional services have been particularly strong,” he says. Larry Storjohann, the corporate general manager at Earnhardt Auto Group in Chandler, Ariz., says his company didn’t hire anyone at its dealerships for almost two years, from November 2007 to November 2009. Automotive sales have started to improve, with the company’s sales growing 10 percent from 2010 to 2011. The company has hired 30 to 40 new employees recently at its 16 stores. Says Storjohann: “We’re hiring, and it seems like, knock on wood, the economy is continuing to inch up.”