Why June’s upbeat jobs report isn’t necessarily positive for construction

Dive Brief:

• Nonresidential construction added 16,500 jobs in June, according to the Bureau of Labor Statistics, a surge that offset 4,100 jobs lost in the residential sector.
• The June gains helped push the industry’s overall unemployment rate even lower, to 3.7%. That’s the lowest rate for June in the data series’ 23-year history, according to Ken Simonson, chief economist for the Associated General Contractors of America.
• The job gains coincided with a 13-cent bump in hourly wages during the month, to $34.68, outpacing the 10-cent rise in wages for all industries. Over the last year, construction pay has also risen faster than in the general workforce, increasing 5.6% versus 5.1% for all workers.

Dive Insight:

While additional jobs are usually viewed as a sign of industry strength, construction economists found reasons for concern.

“This does nothing, however, to dim the risk of recession,” said Associated Builders and Contractors Chief Economist Anirban Basu in a release about the numbers. “Employment tends to be a lagging indicator,” he said, meaning the gains are backward looking, and don’t portend future expansion.

Instead, he argued that the solid employment performance would make it more likely that the Federal Reserve will continue to raise interest rates. The Fed has already undertaken three increases to raise a key borrowing rate by a total of 1.5 percentage points since the beginning of the year, with more hikes likely ahead.

Basu said higher borrowing costs, in conjunction with inflated materials prices and rapidly rising worker compensation, give project owners more incentive to postpone or cancel projects, and cuts into contractors’ profitability.

“These factors have already begun to whittle away at contractor profit margins,” Basu said.

AGC’s Simonson said the report gave contractors other reasons for worry. Namely, with more workers already added to payrolls, there are even fewer people looking for work in the sector than before.

Simonson’s analysis of the numbers pointed to the year-over-year plunge in construction pros who are looking for work. In June 2021, for instance, the unemployment rate for job seekers with construction employment was 7.5%, more than double the current rate.

In the 12 months since then, the number of construction workers looking for jobs fell by 345,000, or 47%.

That suggests there are few experienced job seekers left in the field for companies to fill the 466,000 construction jobs that were still open at the end of May. That’s the largest number of unfilled jobs in the sector for May since 2000, when the data series first appeared.

“With industry unemployment at a record low for June and openings at an all-time high for May, it is clear contractors can’t fill all the positions they would like to,” Simonson said in a statement.