There might be no way to exaggerate the extent to which the Great Recession and the slowcovery is fundamentally a housing implosion surrounded by a bunch of ripple. (Just ask Dan Indiviglio.) Why do consumers feel so gutted? To begin with, a fifth of mortgages are underwater. Why is overall investment so horrible? For one thing, residential investment is 60 percent below its 2005 peak. You can't take full stock of unemployment without understanding that a fifth of the total job losses came from construction after 2008. And if you start asking about why the jobs aren't coming back, you have to start with the solar system of industries -- furniture, real estate, construction, architecture, etc -- that revolve around the housing market.
Below is one of those this-is-what-it's-all-about kind of graphs, via James Pethokoukis at AEI. It comes from a St. Louis Federal Reserve paper called Why Is Employment Growth So Low? It will not surprise you to learn that the answer comes back to housing. Between December 2007 and February 2010, employment declined by 9 million jobs -- 2 million of which came from the construction industry, where employment declined by nearly a third. The upshot: "The decline in construction accounts for nearly 40 percent of the total decline in employment between December 2007 and February 2010."
Here's the math behind that stat:
Assuming that about 1 million construction jobs were lost when the real estate bubble burst, we estimate that nearly 800,000 additional jobs were lost in other industries as a consequence. Hence, the decline in construction accounts for nearly 40 percent of the total decline in employment between December 2007 and February 2010.