The economy is struggling, and the American worker is feeling the heat. National news reports are flooded with images of job seekers waiting in line for interviews and even longer lines for unemployment checks.

With the home building, financial, and auto industries all floundering, the unemployment rate rose from 5.5% to 5.7% in July, while nonfarm payroll employment fell by 51,000 jobs. The unemployment rate was just 4.9% in January.

Among all the dire employment news, no statistic is more telling about the current state of the economy than this: In the last 12 months, unemployment in the U.S. rose by 1.6 million people. As the workforce shrinks, so to does the demand for housing, says John Burns, president of John Burns Real Estate Consulting in Irvine, Calif.

"When the number of adults with jobs is declining, there is no need for housing other than something that will convince someone to move," Burns says. "Total demand is negative."

Construction employment, which has been particularly hard hit during the housing recession, saw a loss of 22,000 jobs in July. Since its peak in September 2006, construction employment has lost 557,000 jobs, with roughly three-quarters of those losses coming since October 2007, according to the U.S. Bureau of Labor Statistics.

Going hand-in-hand with the decline in construction employment, construction spending fell 0.4% from May to a seasonally adjusted annual rate of $1,081.9 billion for June. The worst hit to construction continues to be on the residential side, where spending is down 26.4% from June 2007, to a seasonally adjusted $379.7 million in June 2008. Month-over-month, construction spending declined 1.8% from May.

"We have a cumulative process by which the downturn in the labor market reinforces the downturn in consumption and housing, which in turn feeds back to unemployment," says Nigel Gault, Chief U.S. Economist for Global Insight. "At the moment, we've still got this spiraling down, not that the economy is plunging, but we're still in a downward spiral."

Fueled by the federal economic stimulus, real gross domestic product increased by 1.9% in the second quarter, based on early estimates by the Bureau of Economic Analysis. But the reported growth was not as much as expected; and though consumer confidence increased earlier this week, economists believe it, consumer spending, and economic growth will retreat once the impact of the stimulus fades.

"The government stimulus helped recently, but that was temporary," Burns says. "We are in a recession, especially in California, Nevada, and Florida. And the economy will get much worse over the next 12 months."

Ethan Butterfield is a senior editor for BUILDER magazine.

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