The Home Builders Institute released its Fall 2024 Construction Labor Market Report last week. The 48-page analysis's highlights are overall bullish, as the U.S. economy continues creating jobs while core inflation abates and real wages rise.
The report notes that the current cooling in the labor market is a sign that inflation is, in fact, moderating in line with the most recent report on cost pressure released by the Bureau of Labor Statistics on October 10.
That report showed the Consumer Price Index increased 0.2% in September, holding steady for three months. Year-over-year inflation rose at an annualized rate of 2.4%, the smallest 12-month increase since February 2021. The Core CPI (excluding food and energy) increased 0.3% in September and 3.3% YoY. Energy decreased by 6.8% YoY, and food increased by 2.3% YoY. Key findings in the report include:
Current Employment Landscape
The construction industry in the U.S. employs a total of 8.3 million payroll workers, 3.4 million of whom work in residential construction. The demand for skilled workers in this industry continues to increase due to a combination of an ongoing need for new housing units and the replacement of older workers.
The National Association of Home Builders estimates around 723,000 workers are needed every year to meet market demands and fill the positions left by retirees. This translates to over 60,000 new hires monthly over the next few years.
An additional 2.17 million construction workers are projected to be hired by 2026. Yet, despite the need, the report highlights a sharp decline in open construction jobs, falling from 400,000 at the start of 2024 to 248,000 in July, reflecting the slowdown in the housing market.
Nonetheless, the employment outlook remains optimistic, especially in residential construction, which gained 63,100 jobs over the last year.
Wage Growth and Labor Shortages
Despite weakening labor demand, construction wages continue to rise, reflecting the industry's persistent long-term challenges. The average hourly earnings in construction increased by 4.3% year-over-year to $38.3 per hour in July 2024. Home building workers saw even sharper wage increases, with their wages accelerating by 9% as of June. This trend highlights the ongoing shortage of skilled craftsmen, especially in trades such as carpentry, plumbing, and electrical work. The February 2024 Housing Market Index survey revealed that 65% of builders reported labor shortages, particularly for finished carpenters.
The report also points to a demographic shift in the construction workforce. While the share of tradesmen has declined from 71% in 2005 to just under 61% in 2022, the industry has seen growth in white-collar jobs such as management and engineering.
Demographic Changes and Diversity
The construction labor force is becoming increasingly diverse. Women make up 10.8% of the workforce, up from 9.1% in 2017. Immigrant workers also play a crucial role, constituting 24.7% of the construction workforce, with an even higher representation of over 31% in trades such as carpentry and masonry.
Latinos make up almost a third of the construction labor force, which is a record high. This is especially true in large states like California, Texas, and Florida. This increase in diversity has been crucial in addressing some of the industry's labor shortages. However, there are still challenges in attracting younger workers. The median age of construction workers is 42, and the percentage of workers under 25 has increased moderately from 9% in 2015 to 10.8% in 2022.
Future Outlook
The long-term outlook for the construction labor market is closely connected to overall economic trends. Inflation is decreasing, and the Federal Reserve is anticipated to lower interest rates further in 2025. This is expected to increase the demand for housing, consequently leading to a higher need for construction workers. The NAHB predicts mortgage rates will drop below 6% by late 2025, reigniting single-family home construction and remodeling projects.
In short, while the construction labor market faces challenges due to labor shortages and demographic shifts, wage growth and increasing diversity offer opportunities for revitalizing the workforce. To read the full report, click HERE.
