The labor market finished strong for 2006, posting an increase of 167,000 jobs for December, the Department of Labor reported Friday.
The unemployment rate held steady at 4.5 percent. For all of 2006, employers added 1.8 million jobs to payrolls. That's a relief. Throughout last year, many economists worried that the cooling real-estate market could hurt job growth and tip the country into recession.
After years of spiraling prices and even bidding wars, the housing boom was over by 2006. In markets around the country, housing prices fell for the first time in more than three decades.
Nigel Gault, U.S. economist for Global Insight, recalls why people were concerned: "Given that performance of the housing market, people would naturally worry [about] what's going to happen to the construction market, and what are the spillover effects going to be on the rest of the economy, consumer spending, etc."
The answer so far: not that much.
Slowdown in Housing
Overall, the job market has proved remarkably resilient. Of course, the slump in housing did take a toll. Residential construction jobs fell sharply, but growth in commercial and heavy construction off-set those losses.
Gault thinks the housing slump actually boosted the commercial real-estate sector.
"All the construction resources were getting pulled into residential construction," he says. "Now, I think, with residential slowing down, it's actually made room for more growth in the rest of the construction sector."
In recent years, high housing prices fueled consumer spending, as people borrowed money based on the increased value of their homes. There was concern that when the housing market turned, people might stop spending. But that hasn't happened.
Speaking from the trading floor of Lehman Brothers, analyst Drew Matus explains why.
"If you bought you house, even as late as two or three years ago, you've probably experienced enough home price appreciation," he says. "So, if you bought a house for $200,000 and it's worth $300,000 and it pulls back by 10 percent, you're still up and ahead of the game. So why would you cut back on your consumption?"
Gas Prices Prove Less Troublesome Than Feared
Earlier last year, people also became worried that spiking gas prices would batter the job market. Gault of Global Insight says that the fact that prices went up and then came back down helped reduce the impact.
"It's been a year of huge fluctuations in gas prices," he says. "We did indeed hit three bucks for a while, but of course then we fell very, very sharply for the next few months. And so now we're maybe in the $2.30 range. I think it would have been a different matter if we'd gone to $3 and stayed there."
Last year's job market was marked by other welcome trends.
Unemployment averaged below 4.6 percent — not too far from what economists consider full employment. And after struggling with flat wages, workers saw them rise more than four percent — before inflation.
Although 2006 was a good year, economists say the labor market could face tougher times in the coming months. Residential real estate may not have hit bottom. And that could mean more layoffs for people who build homes.