Job market surprise: Construction employment is booming
America's labor market is coming off a boil, but one unexpected corner of the jobs market is white-hot: construction.
- That's not what you would expect, based on historical experience, at a time of sky-high interest rates and weak demand for commercial real estate.
Why it matters: The construction hiring boom points to one way in which the economy so far has very different trends than in decades past.
- Demographic shifts, big federal investment in manufacturing and a shortage of housing supply have kept the sector humming, helping stabilize overall economic activity.
By the numbers: Hiring was among the strongest in the construction sector last month, the Labor Department said Friday — adding 17,000 jobs in December.
- Construction firms added an average of 16,000 jobs each month last year — above the 11,000 added monthly before the pandemic in 2019.
Of note: There were nearly half a million unfilled construction jobs in November, a sign of hearty demand for workers that is close to the highest since records began in 2000.
What's going on: The demand for new workers is a result of a number of shifts, some long in the making (muted immigration, retiring workers and housing shortages) and some unique to this economic cycle. Those include generous federal funding that's supported infrastructure and manufacturing investment.
- "Historically, construction employment has been quite sensitive to interest rate changes," but that hasn't been the case in recent years, ADP chief economist Nela Richardson told Axios on a press call last week.
- "Add on big structural changes — immigration, lack of inventory and demographics — and the interest rate component is a small driver compared to those structural ones," Richardson added.
Where it stands: Higher mortgage rates have brought the existing home market to a near standstill, with few willing to give up low-rate mortgages. That's pushed would-be homeowners to the new home market, where construction has picked up.
- Also at play: Manufacturing-related construction spending rose at a $210 billion annual rate in November — more than triple the average rate of spending in the last decade.
- The Biden administration's programs to invest in clean energy, semiconductor manufacturing and more are also part of that story.
The intrigue: "Our good people are constantly being recruited — sometimes for a little bit more money, sometimes for a lot more money," Lynn Hansen, CEO of Crowder Constructors, said last week at an event hosted by an industry trade group.
- Hansen said Crowder, a contractor that bids for public projects, has huge demand for new projects this year and next, thanks to federal funding that's unleashed an infrastructure boom and tax credits that made alternative energy projects "more financially viable."
- Hansen said that as interest rates and other costs have risen "we have seen owners take longer to get projects started, but we have not had any canceled," added Hansen. Crowder has increased salaries, wages and benefits to attract workers, especially younger ones.
The bottom line: Construction hiring has stayed firm in an era of very high rates — and rate cuts look to be on the horizon.