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June 24, 2024

Construction Spending Rises to Record Levels in November Amidst Labor Shortages

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Jan 4, 2024

U.S. construction spending rose more than expected in November to reach the highest level on record, according to new government data. This continues an upward trend in the construction industry amidst strong demand and major infrastructure initiatives, even as companies struggle with persistent labor shortages.

Construction Job Openings Hit New Highs

There were 370,000 open jobs advertised online in the construction industry in November, setting a new record high since data collection began in 2007, according to an analysis by the Associated Builders and Contractors. This indicates incredibly strong demand for workers across residential and nonresidential construction sectors.

The previous high point for open construction jobs was set just two months prior in September 2022. Industry groups cite expanded infrastructure investment and persistent labor shortages as key drivers of the current red-hot job market:

“The infrastructure bill continues to trickle down to construction firms of all types and sizes, driving strong demand for workers across most specialties,” said ABC’s chief economist Anirban Basu. “At the same time, many contractors continue to report difficulty expanding headcount, both among hourly and salaried workers.”

With nearly 1 million more open jobs than unemployed workers in the construction industry, competition for talent is likely to remain extremely high in the months ahead.

Infrastructure Investment, Private Funding Push Spending Higher

According to the U.S. Census Bureau, overall construction spending rose 0.2% in November to an annual rate of $1.80 trillion. This edges out the previous peak of $1.79 trillion set in March 2022.

Gains were primarily driven by public construction spending, especially on highway and street projects funded by the Infrastructure Investment and Jobs Act passed in 2021. Under this law, Kansas is set to receive over $2.5 billion for roads and bridges over the next five years. Other states are seeing similar funding levels that enable major transportation upgrades.

Additionally, private spending on construction remains surprisingly resilient despite rising interest rates and an uncertain economic outlook:

“The value of construction starts managed to essentially match the very strong pace from October,” said Richard Branch, chief economist for Dodge Construction Network. “Givenhigh interest rates and signs of a slowing broader economy, the resilience of construction starts is somewhat unexpected.”

Sustained high levels of investment from both public and private sources are supporting elevated levels of construction activity to modernize infrastructure nationwide. But this also makes the worker shortage an even more pressing concern.

Labor Shortages Reach Critical Levels

The construction sector has faced worsening labor issues for over a decade since the 2008 financial crisis. An aging workforce combined with fewer young workers entering the trades has created a demographic time bomb that has now exploded.

Nearly 90% of contractors in a recent survey reported moderate-to-high levels of difficulty finding skilled workers. Of these companies, 93% said they are raising wages and benefits to attract talent, driving up costs and tightening margins. With advertised job openings nearly triple the number of unemployed workers, the imbalance of labor supply and demand has reached truly unsustainable levels.

Construction Labor Shortage Metrics Statistic
Unemployed Workers 370,000
Open Positions 1 million
Percentage Raising Wages to Attract Workers 93%

The worker deficit is delaying projects and could jeopardize the potential impact of newly-allocated infrastructure funds. State and local leaders are scrambling for solutions, including expanded vocational training programs, improved career mapping for youth, and partnerships with contractors on workforce development initiatives.

For example, engineering firm Burns & McDonnell recently hosted a panel in Kansas City focused specifically on driving more workers to enter skilled construction trades. Innovative public-private efforts like this will be critical to unlocking construction industry growth in the years ahead.

Outlook: Spending Set to Moderate But Remain Elevated

Most analysts believe construction spending is set for some moderation after the current peak. Interest rates are likely to rise further in 2023, cooling housing market demand. And nonresidential segments could see declines if economic growth slows or corporate profits take a hit.

However, total construction spending is expected to remain significantly above pre-pandemic levels thanks to major public infrastructure commitments. State and local governments flush with cash are also approving more school construction bonds and other building programs by wide margins.

Ongoing urban development and interstate expansion will drive geographic hotspots of construction for the foreseeable future. Markets like Nashville, Austin, Dallas, and Charlotte are likely to post above-average job and spending growth in 2023. More broadly, the constant need to maintain and modernize physical infrastructure across America ensures healthy baseline demand.

The wild card is whether the construction labor shortage will meaningfully dampen industry growth despite the huge backlog of funded projects. If the gap between open jobs and available workers persists at current extremes, many firms will simply lack the human capital to deliver on contractual obligations. Relief may have to come from substantial increases in productivity via technology adoption, though this is easier said than done in a traditional industry like construction.

In any case, the building sectors is entering a phase of recalibration between the demand surge from public and private investment, the demographic realities around the aging workforce, and the capacity for younger generations to be attracted to the trades. The associated growing pains will shape the path of construction spending and job openings in 2023. Industry leaders are advised to take a proactive stance, as the external talent market is unlikely to provide relief on its own.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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