5-3-19

For the two years 2017-2018, the  Total All Construction posted Revenue +9.8%,   Volume after adjusting for inflation +0.3%, and total Jobs +7.6%.

Breaking out these numbers by sector,

Nonresidential Buildings —  Revenue +5.9%   Volume -3.1%   Jobs +8.2%

Non-building Civil —  Revenue +3.8%   Volume -3.6%  Jobs +10.0%

Residential Buildings —  Revenue +17.1%  Volume +5.6%  Jobs +8.2%

Similar to a pattern that occurred in the pre-recession spending boom, jobs growth is more closely matched to revenue growth than it is to real volume growth. Overall, for the last two years, construction jobs growth far outpaces construction volume growth.

In the nonresidential sectors, while revenue was positive, after spending is adjusted for inflation, real volume was down 3% to 4%. Yet jobs increased 8% to 10%.  

Residential spending (revenue) was up 17%, but after inflation real volume was up only 5.6%. Residential jobs increased 8%. If we look at residential since 2011 we see persistent growth in volume greater than jobs. But all residential jobs are not captured.

When we look at Nonresidential Buildings we see jobs growth far exceeds volume growth. However, there are some jobs related to residential work that are captured in the nonresidential jobs number, any work on high-rise residential buildings performed by contractors whose company is generally classified as nonresidential, particularly structural, and it is impossible to break out those jobs.

It is difficult to square the consistent jobs growth in excess of volume growth with the long ongoing narrative of jobs shortages. I suppose it could be argued that it is a “skilled” jobs shortage, a lack of workers with the needed experience. But we would have to look back to the period 2000-2004 to find a time when jobs growth was balanced with volume growth. There are several other articles on this blog documenting the variance back to 2000. 

Here’s a link to a twitter thread on the May release of the April Jobs report showing the differences for the last 12 months.

A brief explanation added to answer the question of the difference between Spending (or Revenue) and Volume.

If your company revenues are increasing at a rate of 7% per year at a time when construction inflation is 5%, your business volume is increasing only 2% per year. If you hire support staff to support 7% growth in revenues, you would be grossly over-staffed. Inflation adds nothing to business volume. If you do not factor inflation into your growth projections, you are not forecasting growth properly. Spending is revenue. Volume is spending (revenue) minus inflation.

If a contractor is building houses that last year cost $250,000 to build a 2500sf house, but this year it cost $275,000 to build the same house on the lot next door, the volume did not change. Both sets of dollars represent the cost of the same house, but the most recent house cost 10% more due to inflation. It does not take any more workers to build the house this year than it did last year. Inflation changed the dollars of revenue that changed hands, but inflation added nothing to business volume.

Volume is measuring the amount of work completed, not the cost of the work completed. This blog post compares the number of jobs added to the amount of work added. Adjusting for inflation removes the variable of cost.