By Kim Kennedy, Director of Forecasting, Dodge Data & Analytics

BEDFORD, MA – May 3, 2019 – The job market seems to have bounced back in April after having experienced a mild case of the flu in February and only partial recovery in March. The number of payroll jobs grew by 263,000 in April after gaining just 56,000 in February and 189,000 in March. With this stronger gain in employment, the April unemployment rate slid to 3.6%, the lowest level in 50 years. Given its advanced age (the job market is now in its 10th year of expansion), the health of the labor market continues to surprise.

The heart of this month’s growth came from professional/business services (up by 76,000 jobs), healthcare (up 53,000), and hospitality (up 34,000). Construction payrolls also boosted job growth by a robust 33,000 in April. At the other extreme, the retail sector lost 12,000 jobs in April, continuing its downward slide.

The survey of households showed somewhat more fragility in the labor market than the establishment/payroll survey (reported above). According to this survey, the three main components – the number of people in the labor force, the number of people with jobs, and the number of unemployed people) all declined in April. The total labor force (a combination of those employed and those looking for work or unemployed) fell by 490,000 in April. The number of people employed fell by 103,000 April and the number of unemployed fell by 387,000 over the month. Because the number of unemployed fell by more than the number of employed, the unemployment rate was able to improve.

With a decline in the labor force during April, the labor force participation rate (the share of the 16+ population either employed or looking for a job) slipped to 62.8% – the same as a year earlier, but down from 63.0% in March and 63.2% in the first two months of the year. On the positive side, the participation rate remains above the low of 62.4% reached in September 2015.

The gains in average hourly earnings have also slowed in 2019 despite the very low unemployment rate and tightening labor market. In April, earnings rose 0.2% following increases of just 0.1% in March and January.  Only February’s 0.4% gain matched levels seen near the end of 2018. Still, in the first four months of 2019, private sector wages were up 3.3% from a year earlier, much stronger than seen in prior years of the recovery. Construction wages have performed about average in 2019. Although April wages gained a stronger 0.4% over the month, construction wages were up 3.2% in the first four months of the year.

Overall, the April jobs report contained good news for the U.S. economy. It suggests that the first quarter’s ills were perhaps temporary, rather than a sign that the job market, and the entire U.S. economy, have reached the end of their lifecycle as recession nears.  Even though it’s no longer a bounding pup, there may be some life in the old dog yet.

By Robert Murray, Chief Economist, Dodge Daya & Analytics

BEDFORD, MA - April 26, 2019 - The U.S. economy grew at a surprisingly strong 3.2% in this year’s first quarter, according to the initial estimate from the Bureau of Economic Analysis.  Last year had seen deceleration in the rate of GDP growth, sliding from 4.2% in the second quarter to 2.2% in the fourth quarter, and for various reasons it was believed that growth for this year’s first quarter would continue that decelerating trend.  These reasons included the partial government shutdown, harsh winter weather, and the waning benefits from the 2018 tax cuts.

The first quarter GDP reading was boosted by several factors.  Inventory investment by firms contributed 0.7% to the top-line GDP gain, compared to just 0.1% in the fourth quarter.  Exports in the first quarter advanced 3.7%, while imports (for which increases count as a subtraction to GDP) fell 3.7%.  And, state and local government spending registered a 3.9% hike in the first quarter, which was its strongest quarterly increase in the past three years.

At the same time, the first quarter GDP report included some cautionary points, even with the strong top-line number.  Consumer spending, the largest GDP component, grew just 1.2% in the first quarter, compared to a 2.6% gain for all of 2018.  Nonresidential fixed investment rose just 2.7% in the first quarter, compared to a 6.9% gain for all of 2018.  The nonresidential fixed investment reading in the first quarter was pulled down by a 0.8% drop for nonresidential fixed investment in structures, which marked the third straight quarterly decline for this series.  In addition, residential fixed investment in the first quarter dropped 2.8%, representing its fifth straight quarterly decline, as the recent lackluster performance by single family housing continues to restrain overall economic growth.

On balance, despite the healthy 3.2% gain in the first quarter, the most recent GDP report remains consistent with the sense that the U.S. economy is decelerating from the 2.9% rate of growth reported for 2018 as a whole.  The first quarter lift coming from firms building up inventories is not likely to be repeated, and the same holds true for the lift coming from net exports as well as state and local government spending.  Furthermore, the subdued readings for nonresidential fixed investment in structures and residential fixed investment are consistent with the picture of a construction expansion that at the very least is now in the process of leveling off.

By Donna Laquidara-Carr, Ph.D., LEED AP, Industry Insights Research Director

BEDFORD, MA – April 23, 2019 – Since 2017,  the USG+US Chamber of Commerce Commercial Construction Index has revealed that the biggest challenge facing contractors today is the shortage of skilled workers. One of the most direct ways to tackle this challenge is to be able to draw more people to the industry. The research conducted by Dodge Data & Analytics for the Index in Q1 2019 featured construction careers as a spotlight topic, which helps provide a better understanding of the advantages of a career in construction and how those are typically misunderstood, the aspects of a construction career that may be most appealing to people under 30 and the challenges faced by a fragmented industry in recruiting its workers.

Skilled Worker Shortages and Their Impacts

Consistently, since Q1 2017, over half of the general and specialty trade contractors who participate in the quarterly Commercial Construction Index survey state that they have a high level of difficulty finding skilled workers, and less than 10% report low to no difficulty. The consequences of these challenges are increasingly evident, with 70% of contractors in Q1 reporting that, due to this issue, they are challenged to meet schedule requirements, 63% reporting that they put in higher bids for projects and 40% turning down work opportunities.

Construction Careers: Myth and Reality

Part of the challenge with drawing people into the construction industry appears to be the public misperceptions of it compared to the reality of working in this field. Contractors participating in the survey were asked to select the top three reasons they find construction to be a good career choice and the top three myths about working in this industry.

The most widely selected reason for working in construction is the earning potential, chosen by 70% of respondents. However, one of the top myths about construction as a career, according to 40% of respondents, is that you can’t support a family on construction pay. In addition, over half (56%) of contractors believe that one of the top ways to recruit more workers is, in fact, to develop a better reputation for this industry for high pay. The myth of low pay is clearly a deterrent to drawing more people into construction, and one that needs to be debunked.

Many contractors also report that some of the top myths about construction are that it is a dirty job (selected in the top three by 61%), that it requires brute strength, not training (55%), and that it is just a job and not a real career (52%). However, these are again upended by the experience of contractors themselves. The second highest percentage (43%) regard the opportunities for career advancement as one of the top reasons that construction is a good career, and around one third also note the ability to gain skills on the job (37%) and diversity of work experiences (27%) as top aspects of their work. All of these demonstrate that for practitioners in the industry, construction is a rewarding career with satisfying, challenging work, a message that doesn’t seem to be heard by the public.

Recruiting Workers Under 30

Contractors were also asked about the top ways to attract more workers under 30 to the industry. Not surprisingly, high pay was selected by the highest percentage, and good benefits followed close behind. The next two means of attracting younger workers are related to construction as a career not a job (clear path for advancement) and the work itself (satisfaction derived from a career that involves making something). Again, the most important element appears to be upending the long-standing myths about working in construction to draw younger workers.

Means of Recruiting New Workers

One structural challenge facing the construction industry in its goal to attract new workers is the fragmented ways in which they are recruited. Unlike the other questions in this spotlight survey, contractors were asked to identify all means for recruiting workers, not just the top three. However, no single recruitment strategy, not even placing traditional advertisements for workers, was selected by even half of the contractors surveyed. With no standard ways to find workers, it is not surprising that the positive message about construction careers can become diluted. This is a challenge that few small or midsize contracting companies are in a position to tackle effectively, and it may need to be addressed by larger institutions within the industry in order to address the growing crisis of skilled worker shortages in construction.

By David Reaves, Senior Economist, Dodge Data & Analytics

According to the most recent report from the Bureau of Labor Statistics (BLS), non-farm payrolls added a whopping 304,000 jobs in the first month of 2019. This mark greatly exceeded the consensus estimate of 165,000 from Economists surveyed by Bloomberg. In the face of the longest government shutdown in U.S. history and general trepidation that the current U.S. expansion could be nearing an end, private-sector hiring remained steadfast and robust. In fact, the few discernable effects of the government shutdown were a slight rise in the January unemployment rate from 3.9% to 4.0%, and the number of temporary layoffs from the household survey rose by 175,000 (the majority of which were furloughed government workers). Separately, average hourly earnings for all private nonfarm employees rose by 3 cents, a 3.2% year-over-year increase. While wages did increase, wage growth decelerated from a 10-cent increase in December.

As always, some expected revisions were evident in the monthly data. Total nonfarm payrolls were boosted by 20,000 in November (to 196,000) and lowered by 90,000 in December (to 222,000). Even after those revisions, the 3-month average for job gains sits firmly at 241,000 per month. This number lends confidence to the general narrative that the U.S. labor market remains healthy. Touching on a few specifics, the leisure/hospitality (+74,000), education/health services (+55,000), and construction (+52,000) sectors all performed admirably posting more than 50,000 new jobs each. The transportation/warehousing and retail trade sectors experienced solid advances after seeing losses in December.  The largest negative from this month’s release was a slowdown in manufacturing payroll growth, which posted a five-month low for new hiring in January (+13,000).

The strength of the BLS’ recent monthly employment estimates should provide assurance of the current strength in the U.S. job market. Looking forward, however, some downside risks to the economy could pose problems for the labor market. The threat of another government shutdown, continued trade tensions with China, the threat of new tariffs on the already softening manufacturing sector, and the effect of political unease on consumer confidence are all whispers of concern that can be heard across the nation. So far, the whispers are just that, whispers.

By Kim Kennedy, Director of Forecasting Dodge Data & Analytics

It’s not news that the retail industry has been under a great deal of stress in recent years as online shopping pockets an ever-increasing share of consumer spending. New construction data from Dodge Data & Analytics show that even the giants of retail are not immune to this stress. Although Walmart spent roughly $1 billion in 2018 on new construction, additions, and renovations, that level of spending was down 11% from 2017 – and 2017 was down 18% from the previous year. Despite the declines, Walmart still outspent second-place Aldi’s Food Store by three-to-one last year.

Not all of the largest retailers lowered construction over the past year, however. Competitive pressures still kept some in expansion mode, or at least in renovation mode. Second-place Aldi’s, for example, grew construction starts by 2% in 2018 to $311 million following a 77% surge in 2017. Third-place Target has also been on a construction spree with increases of 183% in 2016, 52% in 2017, and another 19% in 2018 which brought the total dollar value of starts to $229 million.

Given the size of the stores, it’s not surprising that the big box retailers were well-represented among 2018’s 20 largest spenders for retail construction. Seventh-place Costco joined Walmart and Target among the top 20. Four supermarket chains were also on the list: Aldi (#2), Publix (#5), Kroger (#9), and new to the U.S., Lidl (#17). Two home improvement/hardware stores were also among the top 20: Menard’s and Harbor Freight Tools, which brags of opening a new store every three days. Not all of the top 20, however, have massive store footprints: three fast food restaurants were on the list (McDonald’s, Chick-Fil-A, and Taco Bell), as well as two dollar stores and two auto parts dealers. And for those of us addicted to our morning coffee, it’s noteworthy that Starbucks will soon be on even more street corners – it placed #14 among the top retail chains for construction starts in 2018.

By Anne Thompson, Economist

BEDFORD, MA – NOVEMBER 28, 2016 – Sales of existing homes improved more than expected in October to the highest level since February 2007. The National Association of Realtors reported last Tuesday that sales of previously owned homes rose 2.0% in October, to a seasonally adjusted annualized pace of 5.60 million units. Compared to a year earlier, homes resales jumped 5.9%.

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October’s strong gains were widespread with expansion occurring across all regions. In the South, existing home sales rose 2.8% over the month to an annual pace of 2.22 million units. Growth in purchases also outpaced the nation in the Midwest, rising 2.3% to 1.36 million units. In the Northeast, sales improved 1.4% to 750,000 units.  While sales in the West saw the smallest gain, rising just 0.8%, they reached a seven-year high of 1.27 million units. Year-over-year resales also rose across all regions. In the West (+10.4%) sales jumped by double-digits. The Midwest (+6.3%) and South (+4.7%) also posted healthy annual growth while sales improved by a more modest rate in the Northeast (+1.4%).

The national increase in October was solely due to a 2.3% rise in purchases of single family dwellings to a nine and a half year high of 4.99 million annualized units. Growth in single family resales outpaced the nation in the South (+3.1%) and Midwest (+2.4%). Expansion was softer in the Northeast (+1.4%) and West (+0.9%). All regions also saw sales improve over the year.  Gains outpaced the nation in the West (+9.9%) and Midwest (+6.7%), but were also significant in the South (+5.9%) and Northeast (+3.3%).

Meanwhile, existing condominium sales were at a seasonally adjusted annual rate of 610,000 units – unchanged from September and from a year ago.  Sales over the month were also flat across all regions. In contrast, year-over-year sales varied widely across the country.  As with the nation, condominium resales were flat in the Midwest.  Sales slumped 7.7% in the Northeast and dropped 3.8% in the South.  These large declines were offset by a 14.3% surge in resales in the West.

The inventory of existing homes available for sale rose a modest 3.0% over the month to 1.76 million seasonally adjusted annualized units. Still, strong sales kept the months’ supply nearly flat at 4.3 months. A six-month supply is typically considered a healthy balance between supply and demand. The median home price inched up 0.5% over the month but gained 6.3% over the year to a seasonally adjusted $223,000, marking the fifty-eighth consecutive month of year-over-year gains.

The positive news about existing home sales was dampened on Wednesday by the Commerce Department’s report on new single family home sales. Sales dipped 1.9% in October to a four-month low of 563,000 annualized units. While the report was disappointing, new home sales represent less than ten percent of all sales and are traditionally a volatile series. Year-over-year purchases, which are a better indicator of the general trend, improved by double-digits for the seventh straight month in October jumping 17.8%.

Regionally, sales were down from September across most regions. In the Midwest sales slumped 13.7%, while in the Northeast (-9.1%) and South (-3.0%) the declines were more moderate. Meanwhile, sales in the West leapt 8.8% over the month. The 17.8% gain in national sales over the year was driven by the West (+28.7%) and South (+17.9%). Sales in the Midwest rose 8.6% from October 2015 while sales in the Northeast fell 6.3%.

Weak sales forced the number of new homes available for sale to climb 2.9% from September to a seven-year high of 246,000 units. At the current pace of sales, it would take 5.2 months to deplete the available inventory. A 1.3% increase brought the median price of a new home to a seasonally adjusted $310,000. The median price of new homes is now 31% above the median price of existing single family homes.

The outlook for the housing market in the coming months is shaky.  On the positive side, wages will inch up as the labor market nears full employment. More millennials will become homeowners as they continue to settle down and start families. However, while the gap between rising home prices and wages is narrowing, inventories will continue to shrink putting upward pressure on prices.  Compounding this issue is rising mortgage interest rates. Over the past month, mortgage rates have surged 50 basis points to a fifteen-month high of 4.03%.   In addition, the Federal Reserve appears on track to raise interest rates in December and rates are likely to continue to increase alongside inflation.