Employment climbs in October, spending grows in September; compensation rises less than in 2019

Nonfarm payroll construction employment, seasonally adjusted, increased in October by 84,000 to a total of 7,345,000, the Bureau of Labor Statistics reported today. There was a gain of 23,800 in residential construction employment, comprising residential building (6,000) and residential specialty trade contractors (17,800). There was an increase of 59,700 in nonresidential construction employment, covering nonresidential building (13,400), specialty trades (27,500), and heavy and civil engineering construction (18,800). Although nonresidential construction added more jobs in October, residential construction has come much closer to regaining the jobs lost in the two months following the pre-pandemic peak in February. Residential construction employment declined by 456,800 (-15%) from February to April but recovered 424,700 (93%) of those jobs. Nonresidential employment fell by 625,700 (-13%) from February to April but recouped 363,700 (58%) of those jobs. The industry’s unemployment rate in October was 6.8%, not seasonally adjusted, with 674,000 former construction workers idled, compared with 4.0% and 398,000 workers, respectively, in October.

Construction spending in September increased 0.3% from August and 1.5% from September 2019 to a seasonally adjusted annual rate of $1.414 trillion, the Census Bureau reported on Monday. The increase was the fourth monthly gain in a row but still left spending 1.9% below the pre-pandemic peak of $1.441 trillion reached in February. Private residential construction spending rose 2.8% for the month and 3.0% from February to September. Combined public and private nonresidential construction spending slipped 1.6% for the month and 5.5% over seven months. All major nonresidential categories decreased since February, with the largest, power, down 9.0% (including electric power, -9.9%, and oil and gas field structures and pipelines, -6.6%), followed by highway and street construction, down 14%. There were wide differences among narrower spending segments. For instance, education construction slid 4.7% over seven months, with primary/secondary school construction up 1.3% and higher education down 14%. Census’s commercial category declined 3.8% since February, comprising warehouses, up 2.1%, and retail structures, down 10%.

Total compensation (wages, salaries, and benefits, including required employer payments) in the construction industry rose 0.3%, seasonally adjusted, in the third quarter (Q3) of 2020, compared to 0.9% in Q2 and 1.0% in Q3 2019, BLS reported on October 30. Wages and salaries in construction rose 0.2% in Q3, vs. 1.3% in both Q2 and Q3 2019. Over 12 months, compensation increased 2.4%, vs. 3.5% in the previous 12 months, while wages and salaries rose 2.8%, down from 3.7% a year earlier. BLS does not break out benefit costs for construction, but the fact that total compensation increased less than wages over the past 12 months (2.4% vs. 2.8%) indicates that benefit costs rose less rapidly. For all private industry employees, employer costs for total benefit increased 2.0% and health benefits, 1.8%, from Q3 2019 to Q3 2020, BLS reported.

“Merit Shop contractors anticipate skilled craft hourly wage increases of 2.64% in 2020 (2.91% excluding zeros),” construction compensation data firm PAS reported on October 14. The last year in which increases averaged less than 3% was 2010, at 2.5%. “Actual increases for 2019 were 3.25% (including zeros) and 3.26% (excluding zeros). These increases are across the board for all craft, contractor types, sizes, and regions of the country. WorldatWork reports 2020 actual construction increases at 3.1% for nonexempt hourly non-union positions. Historically, our projected numbers are slightly lower than the actual year-end figure, but in this year of COVID-19, that most likely won’t be the case….our September 2020 Pay Practices Update Survey…examined pay trends for the remainder of 2020 and the first forecast of 2021 increases for professional, middle management, and executive positions. As might be expected, 2020 ended up being a time of uncertainty, most notably with roughly one in five contractors freezing pay. However, 2021 projected increases were more optimistic with 88% of contractors anticipating average increases of about 3.3%. Of course, that’s not the entire story. We were surprised by the wide variances in contractor responses by revenue size, contractor type, construction sector, and region of the country. Average projections ranged from 2.3% to 4.6% depending on the contractor’s demographic profile.”

“The first year of new union settlements in the construction industry reach from January through September in 2020 had an average increase of 2.7%,” the Construction Labor Research Council reported on October 15. “Two major forces are acting on the rates, the covid-19 pandemic and the shortage of craft workers (which may become less prominent under the current circumstances)….through 2018, the average increase slowly and steadily rose by about 0.1 percent[age point] a year since 2010/2011,” reaching 2.9% in both 2018 and 2019. If the full-year increase for 2020 remains below 2.9%, that will be the first time since 2010 that the increase has slowed. Among nine regions, average increases ranged from 1.8% in the South Central region to 4.0% in the Northwest. Among 15 crafts, average increases ranged from 2.0% for iron workers to 3.4% for operating engineers, although there is considerable variation across regions for each craft. Because settlements negotiated before 2020 included larger average increases for 2020 than settlements negotiated so far this year, the January-September 2020 average increase for all settlements is 2.8%, vs. 2.7% for the new settlements. Based on out-year increases negotiated in all years, the average increase is projected to remain 2.8% in 2021 and 2022.