Do Construction Jobs Have Further To Fall?
The U.S. construction industry has lost 2.14 million jobs since August 2006. Given the turmoil of the real estate industry -- both residential and commercial -- this probably isn't surprising. Yet as bad as this looks, it's actually better than might have been expected. In fact, construction workers may have to endure even more layoffs in the months to come.
It's important to understand the job losses of this industry in a context of the total population. The U.S.'s population is larger now than it was in past economic cycles. Thus, to understand just how deep the losses to construction jobs really are, it would be helpful to consider how the ratio of construction jobs to the total civilian noninstitutional population has changed. Here's a chart:
The green line is the ratio for June 2010, which stood at 2.35%, a new low for this recession. Yet, as the graph clearly shows, this isn't that low in a historical context. The ratio went down to 2.37% during the comparably mild 1992 recession. During the recession in 1982, it actually went even lower than it is now -- to 2.27%. It was also at about that level in the mid-1970s.
So in comparison to other bad recessions, construction hasn't suffered much worse than usual. But shouldn't the sector have performed even worse this time around? This recession was caused by the real estate market. Both residential and commercial properties were overvalued, which resulted in historic price declines, not seen in those previous recessions. Real estate market problems have resulted in record foreclosures and unprecedented amounts of empty office space. That has flooded supply and lessened the demand for building new structures. Indeed, we learned last month that May's new home sales hit a record low. So why haven't construction jobs sunk to a lower level in this recession than they had in prior ones?
One explanation is that the government attempts to prop up the real estate market, like the home buyer credit, have staunched the bleeding so far. But with those gone, the labor market may readjust. After construction jobs rose in March and April, they declined again in May and June, once the credit was gone. In June, they were at the lowest level the recession has seen yet. And remember, many construction projects initiated to obtain the credit are still ongoing. When those end, there likely won't be as many new projects to keep those workers busy.
Once the government's influence dissipates through the end of the summer, you may continue to see construction jobs, and the ratio above, decline. Even if it only reaches the low seen during the early 1980s, an additional 186,000 construction jobs would be lost using the June population as a baseline. And considering how much worse the real estate industry is doing in this recession compared to prior downturns, the ratio should logically decline even further.
Note: You get a similar picture if you use total workforce for the ratio's denominator instead of total population.