Area Economy

Wage growth fuels construction employment numbers rebound

October 28, 2016
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The construction industry rebounded in a meaningful way in September by gaining 23,000 net new jobs on a monthly basis after losing 5,000 net jobs in August, according to an analysis of the most recent U.S. Bureau of Labor Statistics data.

Despite the broader industry gains, the nonresidential sector added 2,700 net new jobs for the month, while the residential sector added 15,700 new positions. The heavy and civil engineering subsector added 4,300 net new jobs after losing 23,200 positions over the previous five-month period.

Recent reports indicate wage growth in America has accelerated significantly over the past year. Not only has this helped to support consumer spending, it appears to be inducing more people into America’s labor force. Despite recent job growth in construction and the balance of the economy last month, both industry and national unemployment rose. For operators of construction firms, this should be considered good news, as survey data indicate the lack of appropriately skilled labor represents the biggest concern for U.S. construction firms.

Though construction added jobs in September, not every segment experienced increased hiring activity. Driven by strong multifamily segments and an improving single-family housing market, job growth in residential construction was robust. However, nonresidential employment growth was far less impressive, and nonresidential building construction actually declined. This may be part of an emerging pattern. The most recent Architecture Billings Index also revealed some nascent weakness in commercial construction activity. There may be many reasons for this, including seasonal fluctuations. However, there also are data indicating credit available to commercial real estate is beginning to tighten up. It also remains difficult for many mixed use developers to line up enough office tenants to allow projects to move forward.

All told, the data should be viewed favorably. America’s consumer-led recovery continues to produce enough jobs to sustain itself, and chances of a near-term recession remain quite low.

The construction industry unemployment rate inched a tenth of a percentage point higher in September and now stands at 5.2 percent. The unemployment rate for all industries rose by the same amount, reaching an even 5 percent. This is likely attributable to the 444,000 new persons in the labor force. The labor force has expanded by roughly 2.1 million workers through the first three quarters of 2016. The last time the labor force grew that much through the first nine months of the year was 2000, the penultimate year of the dot-com bubble.

Anirban Basu is chief economist with Associated Builders and Contractors.

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