Real estate starts to pull the economy down

The August drop in employment that the Bureau of Labor Statistics reported this morning surprised a lot of people. You can't really blame them: It was the first monthly decline since 2003, the numbers had been moderately strong in recent months, and the survey was conducted in the first half of the month, missing a couple of very troubled weeks in the real estate and financial worlds. But that the train wreck that is the real estate industry was eventually going to start hurting the overall economy seems pretty obvious when you look closely at the numbers.

I constructed my own makeshift measure of real estate employment by adding together five BLS job categories: "residential building," "residential specialty trade contractors," "real estate," "building material and garden supply stores," and "credit intermediation and related activities." I realize that I'm catching some people not directly involved in real estate here, particularly in the last category, which includes banks, thrifts, and other lenders. But most of the growth in lending in the first half of the decade was in mortgage and home-equity loans, so I don't think it's too far off.

The real estate industry, as I've added it up, only accounts for 6.6% of American jobs. But between January 2001 and May 2006, when real estate employment peaked, it accounted for an amazing 46% of new jobs. Since then the real estate sector has shed 132,000 jobs while the rest of the economy continued to chug along. The August BLS numbers may indicate that this happy disconnect has ended.

For a dramatic graphic illustration of the phenomenon, here's a chart--made beautiful by Time.com graphics guru Feilding Cage--of employment growth (and shrinkage) in the real estate sector and the rest of the economy:

Update: Now mortgage lender Countrywide says it's going to cut 12,000 jobs in the next three months. This is just getting started, I think.