Is Construction Investment Holding Back Job Creation?

Employment level statistics for the month of June 2015 looked a bit worrisome for some economists. At a glance, Construction was one of the missing sector in the list of industries significantly contributing to job creation. Indeed, Construction was the last sector in joining job creation after the Great Recession. Though ADP, the payroll company, reported that the sector added an estimated figure of 19,000 jobs during the month of June 2015 -which reflects a slight decline from the month of April-, establishment survey data from the U.S. Bureau of Labor Statistics (BLS) showed no addition for the Construction payroll data. More in detail, BLS employment data on Construction sector showed that it contracted at several specific specialties. The table below shows awful figures for a season which is said to be appropriate for outdoor works.
Employees on Construction Nonfarm Pay Roll
Specifically, activities that cut back in employment were nonresidential specialty trade contractors (-5.6K estimated employees), specialty trade contractor (-1.9K estimated employees), Residential Building (-6.1K estimated employees). Although there is much of a mix in the employment data for the sector, the aggregate figures suggest that a brief revision is worth doing in order to see whether there is an industry slow down, or just a deferred process due to weather conditions.

Well, the latest data on Construction put in place –May 2015- in the United States show no change in construction investment on month-to-month basis. Estimated change in construction spending for May 2015 was about 0.8% ($1,035.8 billion), with a margin error of +/- 1.5%. Furthermore, most of the estimated values do not support alternative hypothesis in order to reject the null hypothesis. In other words, there is no statistical evidence to claim that construction spending was different than zero (0) in the United States from April to May 2015. At the least, we could say that weather has not played a deferring factor for Construction activities, thereby affecting employment levels for June 2015.

Construction put in place Adjusted

Although data released by the U.S. Census Bureau is subject to constant revision, it seems unlikely that those figures change given the data on employment level. That is, employment levels data are sort of “confirming” that current investment in Construction is not enough for the sector to keep up with economic growth, at least for the summer season.

Employment statistics cannot be interpreted in a vacuum.

Employment statistics cannot be interpreted in a vacuum inasmuch as other economic indicators do determine employment growth. There are many nuances that require attention to detail. Indeed, details on June’s 2015 report on labor market are twofold. First, mining related industries –including utilities- started to adjust to low oil prices, as well as low demand for several manufacturing goods tempered high expectations risen before summer season. Likewise, spring low levels of investment on residential construction realized a decrease on employment for the summer. Second, Professional Business and Services continues to lead job creation in United States. In other words, oil prices do continue to affect the economy, though the industry started to adjust; strong dollar dragged international demand for U.S. metals products thereby affecting employment in manufacturing; third, low levels of investment in construction are taking a toll in employment creation.

Employment level June 2015.

Employment level June 2015.

Since Construction Investment slowed down in the spring, employment in the industry drops in the summer:

The latter factor should worry the most labor economist. Given that oil prices and exchange rates are beyond strictly control of United States institutions, and are also well known phenomena, investment in construction should call the attention of economic policy leaders. Since the beginning of the summer of 2015, when the statistics about GDP 2015Q1 were released, economists started to look at Investment in non-residential and residential structures. This sector is key for the seasonal employment since, as soon as weather allows for, construction and outdoor activities rebound. However, early in the spring 2015, this was not the case. Total residential construction put in place for the month of April 2015 decreased to $353,086 billion of dollars from 360,826 billion put in place the same month 2014, which equals 2 percent decrease over the year.

Residential Construction Put in Place, April 2015.

Residential Construction Put in Place, April 2015.

So, it should not surprise anyone that construction-contractors cut back employment as they see investment dropping. That very fact shows up in employment statistics astonishingly. Data from BLS show construction did not contribute significantly to augment employment levels nationally. Instead, 6.1KResidential construction building workers were dismiss from work; 5.6K Nonresidential specialty trade contractors were also cut from duty. That makes up to roughly 12K seasonal jobs that are crucial for year-round labor statistics.
These statistics are relevant for economics given that construction of new homes has many job spillovers in manufacturing industries. Another way to say the same is that whenever a new home is built, new sofas, TV’s, Kitchens, furniture, so on and so forth, are needed. Furthermore, the housing market was the sector that initiated the Great Recession, and construction as a sector was the latest in joining the path to recover. This issue helps to introduce the other weak flank of the current employment situation: manufacturing.

Manufacturing feels the spillover of strong dollar and low local demand:

The other drop in employment levels for June 2015 was seen in manufacturing, more precisely on metal related products which decreased employment level by 4.5K persons. In this case, apparently, it is not only internal demand which is cutting back employment levels, but also international demand for U.S. manufacture goods. In other words, last six months of strong dollar reduced the demand for U.S. manufacturing thereby affecting employment locally. Several sources have noted the extent to which the exchange rate is affecting negatively U.S. competitiveness and employment. Especially for metal products. Recent data on Current Account –Exports and Imports- released by the Bureau of Economic Analysis showed that during the first quarter of 2015 Goods exports decreased to $382.7 Billion from $409.1 billion. The drop in manufacture exports was mostly driven by a decrease in industrial supplies such as Petroleum, Chemicals and…. Metals products. This effect obviously spills over employment levels nationally. Once again, it is not a surprise.

Unemployment rates, June 2015.

Unemployment rates, June 2015.

The surprise:

Finally, what really happens to be a surprise is the revision of employment levels for the months of April and May 2015. The Bureau of Labor Statistics corrected its initial estimates on those figures by stating that April’s 2015 employments added were 187,000, and May’s employment added were 254,000. At first glance, April statistic fell below the threshold of 200,000 jobs per month, which should worry analysts to begin with. Then, when computed, the total amount of jobs not realized statistically amounts to 60,000. Thus, the monthly average for job gains is 221,000, which is slightly above the 200,000 threshold.

“Discouraged Workers” are coming back into the labor market.

Data on employment levels for April and May 2015 look favorable.

Both months have shown increments above 200,000 jobs. However, the unemployment rate stubbornly hovers around 5.4%. In spite of U.S.’ GDP negative growth in 2015Q1, the U.S. job market seems to be growing at desirable pace. Although there is no clear answer for the persistent unemployment rate on 5.4%, the return of “Discouraged Workers” into the labor force might hold a clue. Accordingly to the U.S. Bureau of Labor Statistics (BLS), “over the past 12 months long-term unemployment has decreased by 888,000”, which might open a window for thinking on “Discouraged Workers” as a pressure preventing the rate to decrease further 5.4%. That pressure is hard to see inasmuch as we focus on month to month analysis and especially when we focus into a specific threshold for jobs gains.


Discouraged Workers:

So, the attention should be brought to the current dynamics of “Discouraged Workers”. That segment of the labor market should inform economists about two connected aspects. First, it may shed light onto current expectations of workers, which also has an interesting impact on consumer spending. Second, by focusing on “Discouraged Workers” economists may explain such a persistent Unemployment rate. Some data from BLS reveal “discouraged Workers” are coming back to reenter the labor market, which constitutes an upward pressure strong enough for the Unemployment Rate to start dropping significantly. It is worth noting that “Discouraged Workers” are not count as unemployed persons since they had not looked actively for a job during the four weeks preceding the BLS’ Survey.


Data wise, level of employment increased by 223,000 jobs in April 2015, and roughly by 201,000 in May. In April Job gains went mostly to Professional and Business Services, Health Care and Construction, the U.S. Bureau of Labor Statistics reported on June 2nd. Meanwhile, ADP reported on June 3rd that their estimates for May are 201,000 job added. Losses were on Mining in April accordingly to BLS, whereas ADP reported losses on Manufacturing in May 2015.



Finally, data from the U.S. Bureau of Labor Statistics show that on April 2015 there were literally no changes in the Unemployment Rate when compared to the same month in 2014. By looking at major groups, percentages are still the same for Asian which have the lowest rate at 4.4%, followed by Whites which is at 4.7%; Hispanics are 6.9% and African Americans at 9.6% unemployment rate. Nonetheless, jobs added to the economy for the month of April 2015 were roughly 223,000. Most of those job gains went on to Professional and Business Services sector, Health Care Business, and Construction. Mining though experienced losses due to low oil prices.


Professional Businesses and Transportation pulled up job creation in U.S. for January 2015: ADP.


Professional Businesses and Trade, Utilities and Transportation pulled up job creation in United States for January 2015.
Employment level started 2015 with an increase of roughly 213,000 jobs compared to December 2014, ADP reported today January 4th 2015. January employment level growth usually shows a slower pace due to weather conditions. So far, winter in the United States has been mild with no major snow storms.

New employees went to work mostly for medium businesses, which added 95,000 jobs to the economy. Small businesses added roughly 78,000 whereas large businesses only 40,000. Thus, ADP statistics show a good path into 2015. “January marks another month of solid job gains and is in line with the NER’s twelve-month average of over 200,000 jobs added per month,” said Carlos Rodriguez, president and chief executive officer of ADP.

By industry, Trade, Transportation and Utilities led the hiring in during January with a total of 54,000 jobs added. Professional Businesses added a solid number of jobs rounding 42,000. Although at a slower pace, Manufacturing sector has been also adding jobs since September 2011. For January 2015 ADP estimates manufacturing added 14,000 jobs to the U.S. Economy. Construction, as expected, added 18,000.


ADP collects data from 411,000 companies for which it manages their payroll information. Those 411,000 companies comprise more than twenty percent of all total US private sector companies.

241,000 jobs added to US Economy in December 2014: ADP.

Apparently, the US economy follows its way into a strong recovery. Employment level closed 2014 with an increase of roughly 241,000 jobs compared to November 2014. New employees went to work mostly for small businesses, which added 106,000 jobs to the economy. Medium businesses added roughly 70,000 whereas large businesses only 60,000. There have not been major weather events in the US affecting employment so far (winter 2014). Thus, ADP statistics show a good path into 2015.
By industry, Services still leads the hiring in the recovery with a total of 194,000 jobs added last month. Construction and Manufacturing added 23,000 and 26,000 respectively. Carlos Rodriguez, CEO of ADP, pointed out that “December delivered another strong number well above 200,000 to close out a solid year of employment growth with over two and a half million jobs added”.

ADP new hires

In terms of the economic recovery from the Great Recession, since early 2014 almost every sector is adding jobs to the economy. The first sector pulling up job creation has been Professional Businesses, which is followed by Trade and Transportation. Although at a slower pace, Manufacturing sector has been also adding jobs since September 2011. The last sector in joining job creation statistics was Construction. Graph # 2 shows percentage change in level of employment indexed to June of 2009 (end of the Great Recession). Mark Zandi, chief economist of Moody’s Analytics, claims, “The job market continues to power forward. Businesses across all industries and sizes are adding to payrolls. At the current pace of job growth, the economy will be back to full employment by this time next year.”

ADP Employmet level gains

Optimism among Moody’s analyst contrasts against economic perspectives of several surveys such as the Texas Manufacturing Outlook Survey (TMOS). Many of the TMOS responders manifested cautiousness, and actually adjusted expectations about future new employees, at least, for the six first months of 2015.

ADP collects data from 411,000 companies for which it manages their payroll information. Those 411,000 companies comprise more than twenty percent of all total US private sector companies.