Construction Job Openings Spike in October

October data from the Job Openings and Labor Turnover Survey (JOLTS) indicate that the number of open positions in the construction sector increased significantly, reaching levels and rates last seen in 2007. 

While one month of preliminary data needs to be taken with caution, increases in housing construction suggest that employment levels should be higher than other data sources suggest.

For the economy as a whole, the October JOLTS data indicate that the hiring rate (blue line below) was mostly unchanged, edging up to 3.2% of total employment. The hiring rate has now been in the 3.1% to 3.4% range since January 2011. The job openings rate (red line below) increased slightly to 2.7% in October. The openings rate has now been in the 2.5% to 2.7% range for eleven consecutive months.

JOLTS labor mkt

From 2009 to the end of 2011, the openings rate moved roughly along an increasing trend. However, this growth in open positions has appeared to slow for 2012. Moreover, the hiring rate has remained flat for about a year. All told, these conditions reflect an economy having trouble expanding employment. 

The ongoing weakness in hiring has several potential explanations. One, challenges in housing markets are preventing workers from relocating to labor markets with open positions. However, this “house lock” effect was recently challenged by a paper from economists at the New York Federal Reserve. A second possible explanation is a skills mismatch between available workers and open positions. This explanation is also hotly debated among various proponents of structural or cyclical explanations of post-Great Recession unemployment. Another explanation is that policy uncertainty, for example from the impending fiscal cliff, is holding back employers from adding workers. 

For the construction sector, the September JOLTS data indicate that hiring levels have remained constant for the last few months. October hiring for the construction sector totaled 321,000 and marks the sixth month in a row of hiring in the construction sector above a 300,000 level.

JOLTS const labor mkt

However, job openings in construction (red line above) climbed significantly in October. We’ll have to wait until next month to see if this increase survives data revision, but this development was notable. The total number of open positions (130,000) was the highest since November 2007. And the open position rate (2.3%), measured as a percentage of total employment for the sector, was the highest since April 2007. Anecdotal evidence suggests that many builders are having trouble finding skilled workers for construction, which is consistent with a growing open job rate.

Overall, per JOLTS, net hiring for the construction sector for 2012 year-to-date is only 8,000 positions. This number is hard to reconcile with recent increases in housing construction. While there may be issues with the data, this estimate matches the weak job growth reported by other BLS sources.

res constr employment

For example, the monthly BLS net employment count for November (the employment count data are published one month ahead of the JOLTS data) indicates that total employment in home building stands at 2.027 million, broken down as 553,000 builders and 1.474 million residential specialty trade contractors.

Net job losses at the low point of home building employment (December 2010) totaled 1.46 million. Current net job losses are 1.423 million. And according to the BLS data, over the last 12 months, the home building sector has added only 5,000 jobs.

This is clearly a case where the employment data does not match recent increases in housing construction. It may be the case that startups in the home building and remodeling sectors are being missed by the establishment survey. Recent data revisions suggest construction hiring could have been stronger over the period of April 2011 to March 2012.  We will know for sure in February when the final benchmark revision is published.

A second explanation is that builders were able to service previous levels of home building with current levels of labor and perhaps longer working hours, but now a growing demand for home construction is finally causing job openings to increase significantly. Next month’s JOLTS data will tell us whether this is in fact a trend that will translate into higher levels of construction employment in the near-term.



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