Thursday, January 9, 2014

Is the next wave of job growth in the US coming from construction?

One of the interesting aspects of the latest ADP private payrolls report is a surprising pickup in construction jobs.

Source: ADP

Growth in construction payrolls was certainly expected, but we are talking almost 50K of new jobs added in December. Some analysts remain skeptical.
MarketWatch: - ADP reported that private-sector construction employment expanded by 48,000 jobs last month, the most since February 2006, and more than double November’s gain of 21,000 jobs. Given particularly chilly recent weather, ADP’s report had some economists scratching their heads.

“The ADP estimate for December Construction Payrolls is a remarkable +48,000,” analysts at Stone & McCarthy Research Associates wrote in a note. “The 48,000 increase seems high to us, especially in light of the unusually cold weather in later November and early December.”

However, Mark Zandi, chief economist of Moody’s Analytics, which prepares the report using ADP’s data, said conditions weren’t stormy enough to hit jobs.

“People still put up homes in the cold. A lot of construction does not go up in cold-weather areas anyway,” Zandi said.
While there are questions around this December estimate, it is possible that we are seeing a real acceleration in US construction employment growth. Consider the fact that current US construction spending as percentage of the GDP is significantly below what it was at any time over the past 20 years, possibly much longer. Nobody is saying that this percentage will return to some historical average. But even an adjustment from the current level (chart below) to 6% of the GDP would add about $100bn per year to construction spending in the US. That could certainly generate some jobs.

To put it another way, over the past 10 years the number of American construction jobs has declined by 13%.  Over the same period, the US real GDP has grown by over 18%. That's quite a gap and even a moderate degree of normalization could have a significant effect on the labor markets.
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