The Skilled Trades Gap
What Does A Looming Recession Mean For The Skilled Trades?
The last time the United States experienced a significant recession was between 2007-2008, and it later became known as The Great Recession. It involved a global economic downturn that had a negative effect on world markets, the banking industry and the housing market. This financial crisis led to a huge increase in home mortgage foreclosures in the United States and around the world, and millions of people lost their life savings, jobs and their homes.
Historians now generally consider it to be the longest duration of economic decline in the United States since the Great Depression of the 1930s. Although effects from this recession were felt all over the world, its impact was most arresting in the United States — where this recession came about as a result of the subprime mortgage crisis and housing bubble — and Western Europe.
Recently you might have read or seen news that some economic signs are pointing to the potential of another recession in the not too distant future. While it’s hard to predict when the next recession will hit and how bad it might be, it’s good to understand how certain industries might whether that storm. While the trades we’re hit somewhat hard in the Great Recession, there are some indications the industry could fair better the next time around.
What Is a Recession?
A recession is considered to be any decline or stagnant economic growth in any country's economy. Most of the time, a recession is measured by GDP numbers and unemployment rates. During the 2008 recession, the GDP declined by 4.3% and the unemployment rate approached 10%.
Background on the 2008 Recession
One of the biggest causes of the recession in 2008 was the subprime mortgage crisis. This was a period from the early-to-mid 2000s, when mortgage lenders were less restrictive on who they approved for mortgage loans. People with riskier financial portfolios, for example, were approved for mortgages so these lenders could capitalize on rapidly rising home prices.
Eventually, this led to two major mortgage lenders — New Century Financial and American Home Mortgage Investment Corp. — declaring bankruptcy and the Federal Home Loan Mortgage Corporation (Freddie Mac) stating that it would no longer be purchasing risky subprime mortgages. This was in the period between April and August 2007.
Next came the stock market. On October 9, 2007, the Dow Jones exceeded 14,000 points for the first time in its history (its most recent high closing record came in July 2019, when it exceeded 27,000 points for the first time), but over the next 18 months, the Dow Jones would lose half its value, affecting hundreds of thousands of Americans who had portions of their life savings invested in the stock market. These individuals endured catastrophic financial losses.
In March 2008, Bear Stearns collapsed, and JP Morgan purchased them at a cut-rate price. A few months later, Lehman Brothers declared bankruptcy. At the time, it was the fourth-largest investment banking firm in the United States.
The recovery after this recession was slow, but it was officially over in 2009. It spurned a new period of financial regulation in the United States. In 2010, President Obama signed the Frank-Dodd Act, which was created to restore some of the government's regulatory control over the financial industry. It allowed the government to assume control of banks on the verge of financial collapse and implemented various consumer protections.
Are We Headed for Another Recession?
It's been over 10 years since the Great Recession ended, and many people are wondering if we may be headed for another recession soon, especially with a presidential election looming in 2020.
The National Association for Business Economics (NABE) released results of an August 2019 survey which assessed the opinions of some 226 economists on their predictions for the near future. Of this group, 38% believed the United States will enter a recession by 2020, and 34% chose 2021 as the next recession year.
Further contributing to the possibility of an upcoming recession is the fact that this is the single-longest period of uninterrupted economic growth in U.S. history. Americans have been in a state of economic expansion for more than 10 years. Combine this with the most basic lesson in economics that "what goes up must come down," and the possibility of a recession seems inevitable.
An Economist's Perspective
Generation T recently talked to Wayne Winegarden, Ph.D., a Senior Fellow in Business and Economics at the Pacific Research Institute, to gain some insight on his perspective of whether we're headed for another recession and what effect it might have on the trades. He has previously published columns in the Wall Street Journal, Chicago Tribune, Forbes.com and Investor's Business Daily.
His perspective on short-term prospects was negative. "Short-term, the policy environment is problematic, and then you look at some of the surveys and what's been happening with manufacturing, and you begin to see that there are trends that are disconcerting. Morgan Stanley said they put the recession risk at 30%, and for them to say that, that means there's a real risk of a recession going forward, and I would agree with that."
What Does This Mean for the Skilled Trades?
So, if a recession is looming in the next few years, what does this mean for the skilled trades, both for people working in them and for those looking to start their careers?
First of all, it's important to know that all careers are typically affected in one way or another by economic downturns no matter what field you work in. Schools may stop hiring new teachers, companies lay off employees who are deemed to have low ROIs and other employers may cut salaries.
Winegarden notes, "I don't think there's any reason to believe that a white-collar job as a lawyer or office job is any more secure in a recession than a trades job."
For the skilled trades, the news is encouraging. Even though people may not be building new houses, renovating their kitchens or installing a brand new bathroom, they will need to hire people to maintain the kitchens, bathrooms and living areas they already have. That means as a skilled tradesperson, you need to make yourself invaluable and indispensable to people who require your services.
If you're an electrician, people may need you to help them come up with more energy-efficient solutions for their homes so they can save on monthly utility bills, and if you're a plumber and the toilet is constantly running and wasting water, people are going to need you to make those repairs instead of plumbing in a whole new toilet and sink.
Will It Be Like 2007/2008?
Generation T asked Wayne Winegarden: If we are headed for another recession, is it going to be as impactful as the one in 2007-2008?
"The Great Recession was a barn burner. My fear is that we may not hit it that bad, but we could have a bad one. However, you have to say it can't be as bad as it was because, at that time, you had the housing bubble, where funds were misallocated there, and now all of a sudden you have a crashing asset that's at the heart of most people's lives, and that in itself is going to have extra pain involved with it."
"If a recession plays out, it probably won't be as impactful because people won't be losing their homes directly because their interest rates reset. That creates an extra burden. You don't likely have this same type of financial underwriting of assets that have to be cleaned out of the banks in the same way that we went through that will paralyze a financial system."
Winegarden says, "It won't be as bad as 07/08, but I do think it has the potential to be a bad one."
He also reminds us that although home sales are inherently cyclical, as in, they go up and down with time and according to how the market changes, during a recession, "you're not going to have that barn burner of the housing market collapsing, but you will have home sales declining some."
The Possible Effect on the Trades
Winegarden notes that as with any profession, it's always a good idea to enter a new career when the economy's on the upswing, but that's not always possible.
Don't let a possible recession stop you from entering the skilled trades because, recession or no recession, there still is projected to be 3 million job openings in the trades by 2028. "You're not going to be buying new homes, but you are going to need to be maintaining what you have."
"If we're in a recession, and my hot water heater breaks, I'm not going to buy a new one, I'm just going to repair the one I have. I know a skilled tradesman needs to install it, but a skilled tradesman also needs to repair it."
The Bottom Line
Although an economic recession may be on the horizon, it doesn't mean you should let that stop you from entering a new career in the skilled trades. No matter what state the economy is in, people are always going to need electricians, carpenters, plumbers, painters, HVAC pros, appliance techs and drywall specialists, among many other trade jobs, especially since many Americans are likely to be focused on maintaining their homes to keep them in good shape during tough times.
And, Winegarden notes, skilled tradespeople have a significant amount of human capital, something not all professions have.
"A skilled tradesman has more human capital than someone who's working in a manufacturing plant, for example. If we are going into tough times, wouldn't you rather have that human capital within yourself to whether the storm?"
At Generation T, we know we would.
Grow your own human capital and gain indispensable, valuable skills when you enter a career in the skilled trades. Learn more about Generation T, the trades and how we're working to change people's lives for the better.