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How Tight are U.S. Construction Labor Markets? – Answer in 3 Graphs

0 87 Economic

by Alex Carrick

How tight are U.S. construction labor markets? This article will address that question through the use of three graphs based on seasonally adjusted (SA) data from the latest (i.e., April 2017) Job Openings and Labor Turnover Survey (JOLTS) report, published by the Bureau of Labor Statistics (BLS).
2017-06-27-US-Construction-Labor-Graphic

Graph 1 shows the history, January 2001 to April 2017, of job openings in the U.S. construction sector. Job openings are recorded both as a level (i.e., in nominal terms) and as a rate (i.e., number of job openings as a percentage of ‘employment plus number of job openings’.)

April 2017’s level of job openings at 203,000 was close to the most recent high of 238,000 reached in July 2016. Over the full extent of this series, however, there were stronger performances in 2007 and 2001. February 2007 climbed to 273,000 and April 2001 soared to 318,000.

While April 2017’s ‘rate’ of job openings in America’s construction sector was a bulked-up 2.9% (i.e., many times greater than April 2009’s 0.4%, near the tail-end of the Great Recession), it wasn’t as aggressive as the 3.4% rung up twice in the second half of last year, in July and September.

Prior peak ‘rates’ of construction jobs openings occurred in February 2007, at 3.5%, and in April 2001, at 4.4%.

Graph 1: U.S. Construction Jobs Openings (from JOLTS Report)
U.S. Construction Jobs Openings (from JOLTS Report)
*Rate is number of job openings as % of construction employment plus number of job openings.
JOLTS − Job Openings and Labor Turnover Survey, a favorite of Janet Yellen, Chairman of the Fed.
Data source: Bureau of Labor Statistics.
Chart: ConstructConnect

Graph 2 displays U.S. construction jobs ‘quits’ numbers. The theory is that rising ‘quits’ levels and rates are positive coincident indicators concerning the strength of the economy. During prosperous times, more people will have the confidence to walk away from their jobs, believing they will be able to find new/alternative employment easily.

The construction sector’s ‘quits’ level dropped to as low as 57,000 in May 2010. In April of this year, it climbed to a post-recession high of 166,000. While that’s exceedingly good news, it should be pointed out that the ‘quits’ level in construction before the Big Dip was often over 150,000 and in late-2005-through-early-2006, it fluctuated in a range between 200,000 and 250,000.

There were robust groundbreakings of single-family homes in 2005-2006 and such activity requires significant amounts of labor input.

At 2.4% in February, March and April of this year, construction’s quits ‘rate’ has reached a post-recession high. Still, it will need to increase by almost another percentage point to match the 3.2% of September and December, 2005.

Graph 2: U.S. Construction Jobs 'Quits' (from JOLTS Report)
U.S. Construction Jobs 'Quits' (from JOLTS Report)
*Rate is number of job openings as % of construction employment plus number of job openings.
JOLTS − Job Openings and Labor Turnover Survey, a favorite of Janet Yellen, Chairman of the Fed.
Data source: Bureau of Labor Statistics.
Chart: ConstructConnect

Whereas Graph 2’s perspective on construction labor turnover is worker-centric, Graph 3’s is from the viewpoint of the employer. It shines a spotlight on ‘layoffs and discharges’.

It seems only logical that layoffs and discharges would be elevated in the worst of economic times and that’s confirmed in Graph 3’s sharp spikes in both ‘levels’ and ‘rates’ in 2009 and also in subsequent years extending through 2012.

Since 2014, though, employers have been reluctant to engage in construction sector labor dismissals.

The level in April 2017, at 195,000, was more than December 2015’s recent trough of 126,000, but it was almost on a par with the best of times before the Great Recession.

The layoffs and discharges ‘rate’ has been similarly restrained. It dropped to only 1.9% in December 2015, but remained relatively tamped-down at 2.8% in April. By comparison, note that in April 2009, it ballooned to 6.5%.

During the 00s, the layoffs and discharges rate rarely retreated below 3.0%.

Apparently, construction sector employers, challenged by a limited supply of manpower, are making every effort to retain the workers they already have on their payrolls.

Graph 3: U.S. Construction Jobs Layoffs/Discharges (from JOLTS Report)
U.S. Construction Jobs  Layoffs/Discharges (from JOLTS Report)
*Rate is number of job openings as % of construction employment plus number of job openings.
JOLTS − Job Openings and Labor Turnover Survey, a favorite of Janet Yellen, Chairman of the Fed.
Data source: Bureau of Labor Statistics.
Chart: ConstructConnect

The conclusion to be reached from Graphs 1 through 3 is that strains are definitely being felt in the U.S. construction labor market. But while availability issues have certainly come to the fore, they are not yet of epic proportions.

Graph 4 is a bonus chart and it provides overview insight. U.S. total construction employment has risen dramatically since its most recent trough in January 2011. Total on-site jobs have returned to the level that was prevalent from 2000 through 2003, but they have not yet managed a repeat of their summit in 2006-2007, when there was a boom in homebuilding.

The not seasonally adjusted (NSA) unemployment rate in construction in May of this year was 5.3%, which was almost the same as May of last year’s 5.2%. Only on a few occasions has construction’s NSA jobless rate dropped below 5.0%. As shown in Graph 4, it has fallen to a floor level of about 4.5% three times since the turn of the millennium – in the summers of 2000 and 2016 and in the fall of 2006.

Graph 4: U.S. Construction Employment & Unemployment Rate
U.S. Construction Employment & Unemployment Rate
Data source: Bureau of Labor Statistics (U.S. Department of Labor).
Chart: ConstructConnect

One would expect that the compensation going to construction workers would be on the ascendancy, and that has been happening to some slight degree. The Employment Situation Report published by the BLS records that average weekly and average hourly earnings in construction presently lie in a range between +2.2% and +3.3% year over year. Those gains are a little faster than the all-items CPI inflation rate for May 2017 of +1.9%.

Another measure of construction labor cost appears quarterly in the BLS release entitled Employer Costs for Employee Compensation. In that report for Q1 2017, the year-over-year increase for construction workers is a more substantial +4.7%. But this is a series that displays a great deal of volatility. Outsized increases, with minimal gains on either side of it, are not unusual.

For example, Q3 2011 registered +1.4% y/y, to be followed by +5.6% y/y in Q4 of that same year. In 2015, +4.5% y/y in Q3 plunged to +1.9% y/y in the next period.

Two possible developments could push the shortage of construction workers into a far more critical stage. First would be if single-family housing starts finally returned to where the historical ‘norm’ and demographic influences suggest they should be, around 1.2 million units seasonally adjusted and annualized (SAAR) each month. They currently reside around 800,000 units SAAR.

A second potential shock would result from serious and effective efforts to advance infrastructure spending. New and repair construction work on highways, roads, bridges, rapid transit systems and a host of other civil projects would send recruitment skyrocketing.

Before putting this subject matter to bed, there’s another bonus chart that deserves a look. Job openings in construction may be healthy at this time, but with respect to all jobs in the economy, they’re not as exceptional as one might suppose.

Graph 5 highlights that total job openings throughout the U.S. economy at present, measured according to both ‘level’ and ‘rate’, are at all-time highs.

In which jobs categories are positions being offered most generously? The three prime industry sub-sectors are ‘health care and social assistance’, ‘leisure and hospitality’ and ‘state and local government’.

Graph 5: U.S. Total Jobs Openings (from JOLTS Report)
U.S. Total Jobs Openings (from JOLTS Report)
*Rate is number of job openings as % of construction employment plus number of job openings.
JOLTS − Job Openings and Labor Turnover Survey, a favorite of Janet Yellen, Chairman of the Fed.
Data source: Bureau of Labor Statistics.
Chart: ConstructConnect

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