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Construction Down, Hiring Up, Experts Puzzled

Credit: Courtesy of Associated Builders and Contractors, Inc.

By Roland Murphy for Arizona Builder’s Exchange

Construction industry vicissitudes continue to leave pundits, experts and those who cover them scratching their heads.

Last month, we asked for thoughts on some confusing trends and indicators in construction spending, unemployment and material costs. The gist of most responses was, “Good question. I don’t know either.” (AZBEX, Aug. 4)

Last week, Associated Builders and Contractors, Inc., put out two new reports that add to the haze in a lot of crystal balls.

The first, “Nonresidential Construction Plunges Again; Public and Private Sector Down in July,” notes that nonresident construction spending dropped 1.7 percent in July, hitting $688.7B, the lowest absolute level of spending in the sector since Dec., 2015, according to ABC’s analysis of Census Bureau data.

Of the 16 subsectors included in nonresidential construction, only Public Safety and Power saw a monthly increase. Highways and Streets was unchanged, and the remaining 13 all fell.

Okay, spending is down across the board. That would suggest employment would fall off as well, right?

Nope.

The same day that report came out, ABC also released, “Nonresidential Construction Job Growth Accelerates; Unemployment Falls to 4.7 Percent.” According to data from the U.S. Bureau of Labor Statistics, after shedding 6,200 jobs in July, nonresidential construction added 14,300 in August. Across all sectors, construction added 28,000 net new jobs, the report states.

Standard thinking and fundamental market principles say these two results should exclude each other. However, in both natural and social sciences, best practices dictate when the data run counter to the theory, keep the data and reexamine the theory.

If I am confused (and I am), I am, at least, in good company.

The Paradox Evaluated

“As a society, we collect and report data in order to clarify the nature of our circumstances and how they are changing,” said ABC Chief Economist Anirban Basu in the spending report. “However, recently received data have muddied, not clarified, our collective understanding of how well the nation’s nonresidential construction sector is performing.

“Earlier today, we received information indicating that hiring among nonresidential construction firms was brisk in August,” said Basu. “Job growth was significant among nonresidential construction specialty trade contractors and heavy and civil engineering firms, among others. Interpreted independently, this would suggest growing activity in private and public segments.

“But today’s construction spending report points in precisely the opposite direction. Based on that data, nonresidential construction activity has been trending lower since early 2017,” said Basu. “A number of private segments that had been generating significant growth in opportunities for contractors saw activity dwindle in July, including Office (-1.3 percent), Lodging (-2.7 percent), and Amusement and Recreation (-1.4 percent). For economists and other stakeholders, the question now is whether today’s jobs report tells the tale or today’s spending data are a better indicator.”

When confronted with paradoxical data, I tend to dive deeply into the rabbit hole of obsession, a trait my research and analyst pals probably wish I’d get over, since I tend to pester them relentlessly for clarification when market and industry reports don’t follow standard reasoning.

Rather than beating his head against the wall, however, Basu quite reasonably takes a longer view, saying in the employment report, “Data work in strange ways. In July, overall national job growth remained strong, while construction statistics sagged. One month later, the construction jobs picture looks much brighter, while headline numbers for the broader economy appear a bit less benign.

“Rather than focusing on oscillations in monthly data, look at the broader picture,” said Basu. “Here’s what we know: The U.S. labor market remains strong, as evidenced by enormous numbers of job openings, and construction activity remains robust, especially in certain private segments. This helps explain the 44,800 net new positions added by nonresidential specialty trade contractors during the past year. There is even evidence of growing demand for public construction services, with the Heavy and Civil Engineering segment adding another 6,600 net new positions in August and more than 45,000 during the past year.

“The result is that demand for construction workers continues to expand despite occasional contradictory information emerging from monthly statistics,” said Basu.

So, oscillations happen and aren’t necessarily cause for concern or frustration. In fact, the overall state of affairs might even be a useful jumping off point to make improvements across the board.

Experts can and will argue what sets of market data are the most important for predicting or analyzing a particular trend, but I don’t think anyone can argue with Basu’s hope for the industry’s employment future.

“Hopefully more Americans will enter the labor market and join apprenticeship or other training programs to participate in the nation’s steadily improving construction economy,” said Basu. “Not only will this make it easier for firms to deliver construction services on time and on budget, but it will also expand the nation’s tax base, shrink demand for public assistance, expand the middle class and accelerate economic growth.”

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