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Construction Health Update: In Labor We Trust


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This week labor gives us cause for celebration and introspection. 

In 2016 so far, construction’s contribution to the U.S. economy has soared above $650 billion for the first time since 2008. As American consumers continue to ride solid job growth, low gasoline prices, and low interest rates, our industry is building back from the Great Recession. This consumer confidence has been hovering at a healthy level, helping to maintain our national Construction Health Indicator (CHI) score at a reliable 86. 

The strongest contributor to this steady growth is consumers spending their new disposable incomes on investments (93) in real estate––reflected in a reported 12.3% increase in housing completions just this past month and a 31% surge in the sale of newly built homes. The residential sector contributed 11,000 jobs last month while spending alone contributed almost 0.3 percentage points to the U.S. economy’s 2.4 percent growth rate. However, if you are in the residential housing market, don’t get too comfortable because uncertainty over the U.S. presidential election could weigh on consumer confidence in the next few months. 

About 6.7 million people were employed in construction last month––up from a low 5.4 million in January 2011.

This trend is expected to shift towards government construction contracts, which increased from 8% and 10% this year with school, hospital, and strip mall projects making up for slower growth of apartment buildings and hotels.

The future of our commodities score (72) relies heavily on current events taking place in U.S. domestic and foreign relations politics. The U.S. government and domestic steel industry claim that China is illegally dumping cheap products in foreign markets. As a result, we have seen a 4.1% dip in rebar futures contracts. This could be reversed if much needed trade policy changes have been reached at the Group of Twenty Conference (G20) in Hangzhou, China this past weekend. So even though the price of steel is currently favorable, prices could gradually be brought back up as the global surplus narrows due to Chinese supply cutbacks. Meanwhile, the PPI’s of sand, gravel, and stone continue to pull ready-mix and other concrete products with it.  It is 2.4% higher than the average value observed over the past year. 

In Labor We Trust

Yesterday we celebrated achievements that American worker’s contributions have made to the strength, prosperity, and well-being of our industry. It is a well deserved celebration at the moment as labor currently boasts a CHI score of 93. Additionally, about 6.7 million people were employed in construction last month––up from a low 5.4 million in January 2011.  However, this number is misleading and doesn’t reflect the dire situation that our nation’s skilled labor shortage is currently setting you up for.

Although we are currently experiencing the lowest ever value of construction unemployment this past year (4.3% higher than the all-time low value), the current labor market is a study in volatility. Labor costs jumped 4.3 percent and real worker pay and benefits skyrocketed. But, productivity declined as hours worked are down 1.7%. 

The number of people working in the field dropped by 22,000 since hitting a post-­recession peak in March of about 6.7 million. These factors are good for laborers in the short-run as hourly compensation has jumped 3.7%, but bad for employers and the industry. Therefore, expect to continue paying your workers more by the hour and week for less productive projects.

Here’s the C4 that could potentially demolish our strong labor score: the average skilled laborer is now in his ’50s. In the next few years these laborers will age out of the workplace leading to a skills gap that would require an education and training effort unseen since World War II. Unless our industry plans on replacing laborers with robots in the near future, this labor shortage is nothing to gawk at. This will make it harder for you to grow your business, accept projects, and complete projects on time with reasonable budgets.

That’ll do it for this week’s digest. Keep building and we’ll keep crunching the numbers. Check back here daily as numbers refresh and we’ll continue to translate this into meaningful insights that will help you make informed decisions all week long.

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