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Construction Volume Growing Faster Than Jobs, and That’s a Good Thing.


The most talked about reason for slower jobs growth is the lack of experienced workers available to hire.  In fact, recent surveys indicate about 80% of construction firms report difficulty finding experienced workers to fill vacant positions.  That certainly cannot be overlooked as one reason for slower jobs growth, but is that the only reason?

Even with all this talk of difficulty finding experienced construction workers, there is a lot of hiring going on. For the 5 year period 2011-2015 we added 1,100,000 construction jobs with the peak growth rate in 2014 at 6.1%. Jobs increased by 20% in 5 years.

For the two years 2014 + 2015 we added 650,000 jobs, the largest number of jobs in two years since 2004 + 2005.  In that two years, jobs expanded by 11%, the fastest percent growth since 1998-1999, the fastest pace in 17 years. But peak growth was in 2014 with slower growth in 2015. I expect even slower growth in 2016.

Construction spending hit bottom at the same time as jobs, the 1st quarter 2011. For the same 5 year period 2011-2015 construction spending increased far more than jobs growth. Why is it that jobs don’t increase at the same rate a construction spending?  Because much of that spending growth is just inflation. When describing a shortfall of construction workers, jobs growth should not be compared to spending growth. After adjusting for inflation from Q1 2011 to Q4 2015, we find that construction volume increased by 22% in 5 years.

Spend current vs constant2015 22pct volume growth

Now it looks like over 5 years jobs seem to be growing nearly the same as construction volume.  It even looks like productivity increased, but that’s still not the whole picture.

Real work output growth is total jobs adjusted by the hours worked each year. From 2011 to 2015 construction hours worked increased by 3.6% from near the lowest on record to the highest ever recorded.  The reason this has such a huge effect is hours worked gets applied on all 6.5 million jobs, not just the new jobs added. So, a workforce that grew by 20% worked 3.6% longer hours showing that net total work output actually increased 24.3%.

Jobs plus hours 24pct output growth

This data shows that over the last 5 years new volume increased by 22% while work output to produce that volume increased by 24%. Data clearly indicates we have added more work output than the volume of work we have produced. This indicates a drop in productivity over the last 5 years.

It is not uncommon at all that productivity declines during rapid growth.  This pattern of growth appears prominently in the last two expansions between 1996 and 2006. Firms may be increasing staff based on revenue without strict attention to real volume growth, only to then slow jobs growth and allow volume production to catch up.

By measuring to previous productivity levels, we could say the construction workforce is currently overstaffed. Of course, spending (and net volume after inflation) is expanding rapidly and with it so must the workforce. But, if there is any hope that eventually productivity will return to previous levels, then we must hope for a minimum increase of 2%+ in volume with no matching additional increase in new jobs or hours worked.

Over the next two years I predict construction spending will increase close to 20%, BUT construction volume will increase only 10%, most of that in 2017. In a previous post, “How Many Construction Jobs Will Be Needed” I predicted jobs will grow by 500,000 to 600,000, only about 8%.

Filling positions with workers less qualified than those who were lost accounts for some of the decline in productivity. Working longer hours also leads to productivity loss. To regain lost productivity, new workers need to gain experience AND overall hours need to be reduced and that workload replaced with new jobs. That’s certainly not likely to happen all in one year, but it may account for some of the reason why volume is currently growing faster than jobs, and that’s a good thing. I expect that will continue at least for the next two years.

January 2016 Construction Economics Report

For the latest Construction Economics news follow this link

Construction Economic Outlook

 January 2016 economic report:


Construction Economics – Market Conditions in Construction.

Construction spending may reach historic growth in 2016. We are currently near the most active 3 year period of growth in construction in more than 20 years, and it’s already been ongoing since 2013-2014.

Construction spending is forecast to increase 9.7% in 2016. Spending could reach a total 30% growth for the three years 2014-15-16. The only comparable periods in the last 20 years are 29% in 2003-04-05 and 27% in 2013-14-15.

Uneven growth rates ranging from rapidly increasing spending to slight dips is more an indication of the effects of uneven new starts patterns than a loss of growth momentum.

Index of Actual Spending and Starts Cash Flows 2012-2017


Nonresidential buildings spending is forecast to grow 13.7% in 2016 and the three-year total growth could reach 40% for 2014-15-16. The only comparable growth periods in the last 20 years are 40% in 2006-07-08 and 32% in 1995-96-97. Major contributions are increasing from institutional work in educational and healthcare markets. Office, commercial retail, lodging and manufacturing will decline considerably from from the levels in 2015 but still provide support to 2016 growth.

Residential spending increased 46% in 2013-14-15, similar to only one comparable period in the last 20 years, 48% in 2003-04-05. Residential spending will slow several percent early in 2016 before resuming upward momentum to finish the year with 12% growth, slightly less than growth in 2014 and 2015.

Non-building infrastructure projects, in two of the last three years have barely shown any gains, entirely due to declines in power plant projects. This will repeat in 2016. Spending will decline over the next six months due to the ending of massive projects that started 24 to 42 months ago, then resume moderate growth. Following a 0.5% increase in 2015, spending will increase only 1.2% in 2016, held down by a 10% drop in power projects, the second largest component of infrastructure work.


Construction added 1.0 million jobs in the five years 2011-2015.  800,000 jobs were added in the last three years. In addition, hours worked increased to an all-time high adding the equivalent of 240,000 more jobs over the last five years.

In the two years 2014-2015, jobs increased the most since 2004-2005. Growth in nonresidential buildings and residential construction in 2014 and 2015 led to significant labor demand and wage growth. To support forecast spending, jobs need to grow by 500,000 to 600,000 in 2016-2017.

From the low-point of the recession in January 2010, the unemployment rate began declining as a result of the unfortunate reason of workers leaving the construction workforce.  That decline halted in early 2013, at which point the workforce once again started growing. Since then the unemployment rate has been declining due to the non-working pool being reabsorbed into the the employed workforce.

There are numerous reports of labor shortages in some building professions. Average construction unemployment for Nov-Dec-Jan equaled the lowest on record (for this 3mo period) last seen in 2006, indicating a low available nonworking pool from which to grow jobs.  This data supports the argument of labor shortages and potential difficulties ahead in growing employment. However, jobs continue to grow at the fastest rate in 10 years.


Construction inflation for buildings in 2016-2017 is quite likely to advance higher and more rapidly than previously thought. Long term construction cost inflation is normally about double consumer price inflation. Construction inflation in rapid growth years is much higher than average long-term inflation. Since 1993, long-term annual construction inflation for buildings has been 3.5%, even when including the recessionary period 2007-2011. During rapid growth periods, inflation averages more than 8%. 

Spending growth, up 35% in the four-year period 2012-2015, exceeded the growth during 2003-2006 (33%) and 1996-1999 (32%) which were the two fastest growth periods on record with the highest rates of inflation and productivity loss. Construction spending growth for the four year period 2013-2016 is going to outpace all previous periods.

Inflation cost for residential buildings, nonresidential buildings and infrastructure projects do not follow the same pattern. For the last three years, the Gilbane Building Cost Index for nonresidential buildings has been increasing and has averaged just over +4%. Residential buildings cost indices averaged just over +6% but have been decreasing. Both are expected to climb in 2016. Caution: composite all-construction cost indices or indices that do not represent final cost should not be used to adjust project costs.

Infrastructure indices are so unique to the type of work that individual specific infrastructure indices should be used to adjust cost of work. The FWHA highway index dropped 4% in 2013-2014 but increased 4% in 2015 and is expected to increase in 2016-2017. The IHS power plant cost index gained 12% from 2011-2014 but then plummeted in 2015 to an eight year low. The Producer Price Index (PPI) industrial structures index and the PPI other nonresidential structures index both have been relatively flat or declining for the last three years.

Anticipate construction inflation for residential and nonresidential buildings during the next two years closer to the high end rapid growth rate of 6% to 8% rather than the long term average of 3.5%.

Building Cost Inflation Index

The full report provides analysis for what occurred in 2015, data that supports 2016 forecasts and historical trends that shape the construction industry.


Author’s note: I provided all opinion in this economic report.  Now, as an independent construction economics analyst, I compile economic information and perform data analysis. You can now find all this analysis here in this new blog format. EdZ

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