Construction Spending IS NOT Construction Volume.
I read an analyst report this week that stated construction jobs growth isn’t keeping pace with construction volume growth. The reference appeared to be to construction spending. That fails to convert construction spending to construction volume, so compares apples to oranges. Spending must be adjusted for inflation to get real volume growth. Jobs MUST be compared to volume.
For over two years now, construction volume growth has not supported construction jobs growth we’ve seen. I expected jobs growth to slow down. I’ve been saying this for over a year. This sure looks like it.
For 2018 jobs growth averaged over 300k. Since January 2019 the rate of jobs growth has dropped from 300k to 150k.
Current projected new starts data IS NOT supporting construction volume growth for the next 2 yrs. Growth of 3%/yr in non-building infrastructure will be offset by declines in residential buildings and flat nonresidential buildings. Therefore, there is no real volume support for jobs growth.
This plot adjusts construction spending by taking out inflation to get real construction volume growth. Last year of real volume growth was 2016. Yet jobs continue to climb. This can’t continue. The plot above shows it has slowed.
Construction jobs growth has slowed considerably over last 2Q, as expected. While construction jobs are up about +150k in last year, jobs increased only +45k in the last 6 months. I’m expecting this trend to continue. In fact, I wouldn’t be the least bit surprised to see in the near future some months when construction jobs decline. The fact is, construction volume simply does not support jobs growth.
Total construction volume, spending after accounting for inflation, has been down for 5 of the last 6 quarters. Volume peaked from Q1 2017 to Q1 2018, but the last year of real volume growth was 2016. Volume is flat or down while jobs continue to rise. This can only mean contractors will be at risk of being top-heavy jobs if a downturn comes.
Construction spending annual rate will increase by 3% in the next 12 months, but volume in constant $ after inflation will remain flat. In Q42020-Q12021 spending slows to less than inflation, so volume begins a modest decline. Growth of 3%/yr in non-building infrastructure will be offset by declines in residential buildings and flat nonresidential buildings. Jobs will continue to grow and spread the imbalance even more.
The construction jobs slow down has been in the cards for a long time. With all the talk of skilled labor shortages, there’s been little discussion of the unsustainable excess jobs growth. Maybe it’s about time to change the conversation.