Labor Shortage May Be Hiding Potential Recession

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Robison Wells
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Two things seem to be on the lips of construction managers everywhere: there is certainly a labor shortage, and there’s talk of a recession. But construction has typically been a bell weather for economic ups and downs—construction sees the slowdowns before anyone else, and it sees the pickup before other industries—and there’s no sign of a recession right now.

Normally, when a recession is coming, construction companies begin to slow work, hiring fewer and fewer employees and eventually cutting back and laying some off. But there’s been no such activity this time around—demand for labor is at an all-time high and companies are hiring all they can get.

While economists are calling for wariness about the next stage of the economy, and Wall Street has seen more than a few tumbles in recent months, many builders say that business has never been better. According Ken Simonsen, the chief economist at Associated General Contractors of America, “the data are hard to reconcile.”

In fact an AGC survey showed of contractors showed that 91% planned to hire additional workers in the next year. Other consumer-related economic trends, including increased consumer spending and confidence, low mortgage rates, and low inflation, indicate that home construction should definitely be on the rise.

But on the other side of the coin, the US Census Bureau showed that spending for the first seven months of 2019 was down 2.1% over the same period in 2018. And construction employment only grew by 2.4%, the lowest growth rate in six years.

In the commercial sector, there are pros and cons as well. Educational facilities and transportation hubs continue to grow, but there’s a decline in multifamily housing, offices, and warehouses. Commercial construction is traditionally the last to decline in a recession. “During the most recent economic downturn, nonresidential construction activity peaked in October 2008, fully 10 months into the 2007 to 2009 recession," said Anirban Basu, the chief economist at Associated Builders and Contractors. "The existence of backlog is the primary factor behind the lag."

"Both the planning and starts data are now showing either deceleration or modest declines, which will translate into reduced construction activity in a year or two," Murray said.

To read more on this potential dip in the economy, read ConstructionDive.

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