34 United States The EconomistAugust 31st 2019
21economy. When interest-rate increases
push up the value of the dollar, exporters’
competitiveness in foreign markets suf-
fers. Durable goods like cars or appliances
pile up when credit is costlier.
In the previous cycle, employment in
durable-goods manufacturing peaked in
June 2006, about a year and a half before
the onset of recession. This year has been
another brutal one for industry. An index of
purchasing managers’ activity registered a
decline in August. Since last December
manufacturing output has fallen by 1.5%.
Rather ominously, hours worked—consid-
ered to be a leading economic indicator—
are declining. Some of this is linked to Pres-
ident Donald Trump’s trade wars, which
have hurt manufacturers worldwide. But
not all. Domestic vehicle sales have fallen
in recent months, suggesting that Ameri-
cans are getting more nervous about mak-
ing big purchases.
In some sectors, technological change
makes it difficult to interpret the data.
Soaring employment in oil industries used
to be a bad sign for the American economy,
since hiring in the sector tended to accom-
pany consumer-crushing spikes in oil
prices. But America now produces almost
as much oil as it consumes, thanks to the
shale-oil revolution. A recent fall in em-
ployment and hours in oil extraction may
be a bad omen rather than a good one. By
contrast, a fall in retail employment was
once unambiguously bad news. But retail
work in America has been in decline for
two and a half years; ongoing shrinkage
may not signal recession, but the structural
economic shift towards e-commerce.
Other signals are less ambiguous. In re-
cent decades employment in “temporary
help services”—mostly staffing agencies—
has reliably peaked about a year before the
onset of recession. The turnaround in tem-
porary employment in 2009 was among
the “green shoots” taken to augur a long-
awaited labour-market recovery. Since De-
cember it has fallen by 30,000 jobs.Even if America avoids a recession, the
present slowdown may prove politically
consequential. Weakness in some sectors,
like retail, is spread fairly evenly across the
country. But in others, like construction or,
especially, manufacturing, the nagging
pain of the moment is more concentrated
(see map). Indiana lost over 100,000 manu-
facturing jobs in the last downturn, equal
to nearly 4% of statewide employment. It is
now among a modest but growing number
of states experiencing falling employment:
a list which also includes Ohio, Pennsylva-
nia and Michigan.
Those four states, part of America’s
manufacturing heartland, suffered both
early and deeply during the Great Reces-
sion. In 2016 all delivered their electoral-
college votes to Mr Trump, handing him
the presidency. The president’s trade war
might have been expected to play well in
such places. But if the economic woe con-
tinues, voters’ faith in Mr Trump is any-
thing but assured. Choked states might
well turn Democrat-blue. 7Source: Bureau of Labour StatisticsUnited States, non-farm payrolls
July 2019, % change since March 2019
Decrease Increase 0-0.5 More than 0.5Hurt in the heartlandsME
VT NH
WA ID MT ND IL MI NY MA
OR NV WY SD IAMN
OH PA CT RI
CA UT CO MO KY WV MD DE
NM KS TN NC SC DC
AL GA
HI FLAKIN
NE VAOK
TXARNJWIAZ
LA MST
he pastdecade has not been great for
middlemen, who match buyers and
sellers for a slice of the transaction value.
Travel agents have had their margins
crushed by flight-search and hotel-book-
ing websites. Stockbrokers have been
squeezed out by whizzy algorithms that
carry out transactions for a fraction of the
cost. Taxi dispatchers have been replaced
by Uber and Lyft.
There is an exception, however. Even
though there are plenty of sites, like Zillow
and Redfin, which offer home-buyers in
America the chance to search for proper-
ties, commission rates for real-estate bro-
kers (estate agents in Britain) have not fall-
en much, staying close to 6% (3% for the
buyer’s agent, 3% for the seller’s). Ameri-
cans pay twice as much as people in most
other developed markets, where similar
sites have done much to depress residen-
tial-property transaction fees (see chart).
This irks many. “Why is it that residen-
tial real-estate brokers’ fees are two to three
times higher in the usthan in any other de-
veloped country in the world?” asks Jack
Ryan, who founded rexHomes, a property
brokerage that offers to sell homes for just
2% commission. He believes the problem
lies in the anti-competitive practices of the
Multiple Listing Service (mls), throughwhich nearly every broker in America lists
and searches for homes, and the National
Association of Realtors (nar), a trade asso-
ciation with 1.3m broker members in Amer-
ica, which regulates it.
That opinion is growing in popularity.
Two class-action lawsuits have been filed
against the narand some of the largest
real-estate brokerages, such as Realogy and
Keller Williams. In America, a practice
called “tying” is common, whereby home-
sellers are forced to agree upfront on the
rate they will pay the buyer’s broker. The
lawsuits allege that sellers’ brokers put
pressure on homeowners to offer the in-
dustry standard of 3%. If they refuse, buy-
ers’ brokers may refuse to show their home
to clients.
This is possible because of the mls. In
April, the Department of Justice (doj) be-
gan to subpoena information about how
brokers use the system, looking for evi-
dence that they search for homes by com-
mission rate. If found, it would corroborate
the idea that buyers’ brokers invariably
steer buyers to homes that offer the juiciest
commission. The nar moved to dismiss
both suits in early August. John Smaby, the
President of the National Association of
Realtors, says the lawsuits are “wrong on
the facts, wrong on the economics and
wrong on the law”.
But the market seems to think there is
plenty to worry about. Many large real-es-
tate brokerages are privately held, but the
share price of Realogy, one of the broker-
ages named in the suit, has fallen by half
since the end of April, just after news of the
dojinvestigation leaked. The value of re/
max, another listed brokerage, has fallen
40% over the same period.
If transaction fees are being kept artifi-
cially high by these practices, that is bad
news for homeowners. Some $1.5trn worth
of homes change hands every year. If anti-
competitive practices are elevating Ameri-
can brokerage fees by two to three percent-
age points above where they might beNEW YORK
Real-estate brokers face investigation
for anti-competitive practicesReal-estate commissionSellers beware
If it’s broker, fix it
Residential real-estate commission rate, %Sources: International Real Estate Review; Surefield2002 2015
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