The construction industry appears to be one of the few bright spots in an otherwise shaky economic landscape.
According to the latest data released by the U.S. Bureau of Labor Statistics, the industry added 25,000 jobs in July. This marks a significant year-over-year employment growth of 239,000 jobs, or 3.0%. However, despite the positive job numbers, there are strong indicators that a recession may be just around the corner.
A Closer Look at Nonresidential Construction Employment
Nonresidential construction, a critical component of the overall industry, saw an increase of 16,200 positions in July. This growth spanned all three subcategories:
- Nonresidential Specialty Trade Contractors: Added 11,300 jobs
- Heavy and Civil Engineering: Increased by 2,900 positions
- Nonresidential Building: Grew by 2,000 jobs
These numbers suggest that contractors are still eager to hire, but the broader economic signs are less optimistic. The construction unemployment rate rose to 3.9% in July. Unemployment across all industries also saw an increase from 4.1% to 4.3%.
Looming Recession
“It appears that America is headed into recession,” said Anirban Basu, ABC Chief Economist. “While it is true that many economists have been suggesting this for more than two years, the recent slowing in economic activity feels different. Unemployment is climbing rapidly. Consumer spending growth has become more sluggish. U.S. equity markets are generating large losses, an indication that America is caught in a growth scare and that there is a growing consensus that the Federal Reserve has waited too long to begin reducing interest rates.”
Considering this macroeconomic environment, it may seem peculiar that the U.S. construction industry managed to add 25,000 jobs in July.
How then can it be suggested that the U.S. economy is heading into recession when contractors are still eagerly hiring workers? History provides some clues.
Historical Perspective
Nonresidential construction industry performance has traditionally lagged the overall economy by 12 to 18 months. According to ABC’s Construction Confidence Index, contractors collectively remain optimistic about their prospects for the next six months. However, if the economy continues to weaken, contractor confidence will begin to wane. Indeed, data published by the U.S. Census Bureau released on Aug. 1 indicates that many construction segments are already in slowdown mode.
Manufacturing Construction as an Exception
One notable exception to this trend is construction related to manufacturing. The fastest-growing area in construction spending is building construction, particularly with large investments in chip-making facilities and other industrial projects. Much of this growth comes from federal subsidies. However, many other construction sectors don’t receive these subsidies and are likely to face the biggest decline in performance as the economy weakens and high borrowing costs continue.
Implications for Construction Professionals and Companies
For construction professionals and company owners, understanding these dynamics is crucial. While the current job growth in nonresidential construction is encouraging, it’s essential to prepare for potential economic downturns. Diversifying project portfolios, focusing on efficiency, and investing in technology can help mitigate the impact of a recession.
Conclusion
The nonresidential construction sector is experiencing robust job growth, even as the broader economy shows signs of strain. While current employment numbers are positive, the looming recession could pose significant challenges in the near future. By staying informed and proactive, construction professionals and companies can better navigate the uncertain economic landscape.
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