Something doesn’t add up here…
While economists polled by MarketWatch had predicted a national gain of 155,000 jobs across all industries for May, the U.S. Dept. of Labor’s Bureau of Labor Statistics (BLS) last week reported a paltry 38,000 jobs gained for the month — the fewest in five years — dragged down in part by a 15,000-job drop in the otherwise booming construction industry. The surprise bad news delivered a sucker punch to Wall Street’s gut, and left many firms across multiple industries reeling, at least temporarily.
So, what the heck happened?
Well, major sectors like manufacturing and mining accounted for the majority of the shortfall, losing tens of thousands of jobs. But the nonresidential construction market shed 10,300 jobs, while residential contractors cut an additional 4,400. All this, while overall contracting data has continued to surge.
The timing, therefore, has left many experts puzzled.
“Although construction employment slipped in April and May, the [AEC] industry has added workers over the past year at double the rate of the overall economy,” notes Ken Simonson, chief economist at the Associated General Contractors of America (AGC). And for the most part, the newer crop is working under very favorable terms. Adds Simonson: “Average pay in construction is rising faster than in the rest of the private sector, and the number of unemployed construction workers was at the lowest level in 16 years. These facts support what contractors tell us: They have plenty of work but are struggling to find qualified workers to hire.”
In some instances, he said, contractors are hiring two unqualified workers to compensate for the hire of a single qualified one. Following that reasoning, of course, the less qualified workers would also be more likely to leave the industry if and when the fit proves to be a bad one. Still, some economists and industry observers have linked May’s defection to an overall construction worker shortage. But wouldn’t those 15,000 workers departing this industry be looking to leverage a favorable job market?
“I’ll admit, it’s counterintuitive,” adds Anirban Basu, chief economist at both Associated Builders & Contractors (ABC), as well as Procore Technologies. “Some 15,000 workers don’t just get out of bed one morning and decide they’re leaving the industry. [However], data we’ve collected indicate construction backlogs are very strong.”
Indeed, on June 7, just days after the poor BLS job data was released, Dodge Data & Analytics reported that its Dodge Momentum Index (DMI) had climbed 2.4% in May. Explained Dodge, “The increase in May was due to a 6.5% gain for projects entering planning in the commercial sector, which more than offset a 3.4% decline for such projects in the institutional sector.”
Theories, however, abound. Andy Jansen, CEO at industry job search engine HardHatHub.com, says he has not seen any let up in demand, just more evidence of an ongoing evolution in today’s workplace. “From what we’re hearing, it’s conceivable that new tech has helped to eliminate most of these [15,000] jobs,” says Jansen. “But so many workers are still needed in other areas that we see this as more of an adjustment than a market downturn.”
For its part, payroll processing giant ADP still hasn’t seen any downturn. The firm reports that the U.S. construction industry added workers in plentiful numbers in May. “So the data for May may just be anomalous,” adds Basu.
Caution still advised
Nevertheless, the BLS numbers may still portend decelerating activity among developers involved in robust — if over-performing — commercial and multifamily markets, according to ABC.
A familiar culprit, the weather, also can’t be discounted. Given this past winter’s modest conditions, many U.S. contractors engaged in hiring earlier in the year than usual, Simonson notes. Further, the industry this spring also may have entered a cycle where it simultaneously finished several large projects or project types, and regional lulls undoubtedly have seen activity slow in some areas.
Simonson says he always looks at preliminary BLS job data with a jaundiced eye. The monthly change from March to April, for instance, was revised to a 5,000-employee decline from an initial estimate of a net gain of 1,000 jobs. Not a plus, but a telling example of the volatile fluidity of employment stats.
Stepping back, he believes AEC employment prospects still look good. According to AGC, the number of unemployed construction workers in 2016 has declined for a seventh straight year, to 461,000, the lowest total for any May since 2006. Concludes Simonson, “Fundamentals are still in place for our industry to log a solid performance this year.”
So, let’s take a breath everyone. No need to head for that window ledge.