The Building Tradesman Newspaper

Friday, December 22, 2017

Looks like a happy ending for 2017 construction

By The Building Tradesman

Construction employment is up in the U.S. So are worker wages. As for industry momentum, that's back.

"Employment and pay in construction have risen more rapidly over the past year than in the economy overall, as the supply of unemployed, experienced workers continues to shrink," said Ken Simonson, the chief economist  for the Associated General Contractors. "With unemployment so low overall and in construction, contractors are likely to have increasing trouble filling many types of hourly craft and salaried openings."

Using Bureau of Labor Statistics numbers, the AGC reported on Dec. 8 that construction employment increased by 24,000 jobs in November to the highest level since November 2008. 

U.S. construction employment totaled 6.95 million in November, a gain of 184,000, or 2.7 percent, over the previous 12 months. Year-over-year growth rate in industry jobs was nearly twice the 1.4 percent rise in total non-farm payroll employment.

Meanwhile, the Dodge Data and Analytics "Momentum Index" surged again in November, climbing 13.9 percent to 149.5 (2000=100) from the revised October reading of 131.3. The index is a monthly measure of the first report for U.S. nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. Reflecting the see-saw pattern of construction industry growth in the decade following the Great Recession, the November momentum increase was the second month of strong gains after a four-month period of softness. Dodge said on Dec. 7 that November’s advance was the result of healthy gains in both the commercial and institutional sectors. 

"On a year-over-year basis," Dodge said, "the Momentum Index is now nearly 21 percent higher, with the commercial portion up 24 percent and the institutional side up 17 percent. The turnaround in October and November suggest that building activity should continue to expand in 2018."

The number of unemployed jobseekers with recent construction experience fell to 467,000 in November, down from 517,000 in November 2016, while the unemployment rate in construction dropped to 5.0 percent last month from 5.7 percent a year earlier. These declines show how difficult it has become for the industry to find experienced workers, Simonson said.

Wages in construction are also up. Average hourly earnings in the industry climbed to $29.17, a rise of 2.9 percent from a year earlier. That was a steeper increase than for the total private sector, which rose 2.5 percent to an average of $26.55 per hour. The AGC said that  construction pays nearly 10 percent more per hour than the average nonfarm private-sector job in the United States.

There are all manner of theories why U.S. wages in all industries haven't increased more rapidly, as they have done historically with a tightening labor market. One theory is that the industry's recovery from the Great Recession has been so gradual, there hasn't been a sudden employment shock to the economy in the form of a labor shortage that could cause a pay spike. Other theories include greater globalization of jobs and the higher cost of benefits.

The AGC chimed in that one reason construction wages "have not grown more rapidly is historically low profit margins for most construction projects as firms cope with increased regulatory compliance costs, higher health care costs and robust competition for work." The AGC further said that if the proposed Republican tax reforms "are enacted in a way that lowers tax burdens for all employers, construction firms will have more room to increase wages as they work to recruit workers amid tight labor market conditions."

"Given current labor market conditions, it is reasonable to assume that many construction firms will take advantage of tax cuts to boost pay and benefits," said Stephen E. Sandherr, the association's chief executive officer. "Increasing wages should attract more young people into the industry, while boosting overall economic activity."

To the contrary, less conservative economists have argued that lower tax rates for companies are only going to lead to greater profits for companies and payouts to shareholders, - and not trickle down to workers.