Declining job market could hurt graduates

Editor's Note: The story is part two in a two-part series that looks at the declining economy in Minnesota. Part one ran in Thursday's issue of the Daily.

While winter is typically a slower time of year for construction, Ray Beauvais’s construction company has experienced a “significant” decrease in business since October, Beauvais said.

“This is the first time in our seven-year history that we haven’t been busy in the winter,” he said.

Beauvais is experiencing a state recession first-hand – the condition of the housing market is getting worse, and job loss is increasing in Minnesota – and nationwide – across all industries. University seniors who will graduate in May could also become subject to the economy’s poor circumstances.

Tom Stinson, an applied economics professor and state economist said Minnesota is currently in a recession and has lost 23,000 jobs since June.

While a national recession could be avoided, Stinson said some people are predicting it will happen eventually.

“This is not just a one-month phenomenon,” Stinson said. “It’s been a steady decline and it’s widespread.”

The housing slowdown is one of the main reasons for the state recession, he said. Nationally, housing was overbuilt and there is now a glut of them on the market.

Those industries involved with housing are suffering as well, but Minnesota is being hit harder than other regions, Stinson said. While fewer people are building new homes, the state also has a significant lumber and wood product industry, which is heavily used in housing.

Beauvais said he feels his company has a good reputation in the community, and has had a few small jobs to keep in business.

He said he is hopeful the industry will pick up soon, but has heard this winter will be the toughest to get through.

Finance industry also takes a hit

While construction companies are being hit hard by the declining state of the housing industry, it’s not the only area being affected.

Shane Backer, a loan officer in New York and an expert on the nationwide housing industry, said problems started with the sub-prime mortgage meltdown.

When the housing market was at its peak, banks hired account executives to act as sales people, he said. These account executives sold loans to investment firms in exchange for good rates on home loans.

As the market continued to go up, more investors bought these loans, Backer said.

Six months ago, investors started using “outrageous” programs for financing houses for people who couldn’t get a loan otherwise, he said.

When the market slowed down, Backer said investors “got scared” and took their money out of the market, creating a panic among other investors and prompting them to do the same.

The industry got worse because when one bank started taking away loan programs and changing guidelines, others did the same, he said.

“I expect things to get worse before they get better,” Backer said. “The housing industry has to fix itself first before things will get better.”

The last time the nation was in a recession was in 2001. That recession, Stinson said, was likely less severe than this one will be.

“Historically, Minnesota has been well below the U.S. average rate of unemployment,” he said. “But for the first time in history, the level in the state was the same as the national average in February of 2007.”

According to statistics released by the Minnesota Department of Employment and Economic Development, Minnesota’s jobless rate is now 4.9 percent, compared to the 5 percent national rate. This situation is unprecedented for the state, Stinson said.

Remodeling still doing well

Fladger Phenix, who owns another metro-area construction company, said while new home construction is decreasing, remodeling is still doing well.

He said the companies most affected didn’t “see the writing on the wall” and realize the housing market had to get worse before it got better.

“You can’t have a tidal wave sitting out in the middle of the ocean and not expect it to crash into the shore at some point, because it will,” he said.

Contractors and sub-contractors were out of work after the housing boom, so they started their own remodeling companies without the proper experience, Phenix said, and many did poor work.

Another company would then have to redo the work, which is why the remodeling sector isn’t seeing problems, he said.

Although recessions typically last 10 and a half months before job growth starts, Stinson said he is unsure of how long the recession in Minnesota will last because job growth can take a while.

“We hope that by next fall, jobs are starting to turn up,” he said.