I was poking around yesterday's update on construction spending and I noticed something odd. Total spending on construction has increased pretty steadily for the past decade. However, the number of construction workers took a big hit during the pandemic and never recovered to its previous trend:
This means that construction workers today are considerably more productive than they were a few years ago:
Has construction productivity really increased by $24,000 per worker? No special reason for this comes to mind.
Another possibility is that employment of construction workers has caught up to its pre-pandemic trend, but mostly by hiring illegal immigrants who don't show up on the books and aren't reported to BLS.
Or is there some other explanation?
Wow!!! The first graph shows a zero root!!!!!
200k people have been coming across the border every month
that's a lot of framers, roofers, and landscapers
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In the short term variation of productivity numbers has little significance. Hiring typically lags behind productions and further behind investment. In the long run, productivity depends on investment for mechanization, not what individual workers do, and investment may not pay off in production for years.
Once again, just because somebody puts out a number every month or quarter doesn't mean that the variation is meaningful. In the case of productivity the period of uncertainty extends to years.
There do seem to be fewer people on work sites. I worry that means fewer apprenticeships and journeyman workers and more fly by night construction shifts.
My observation is that companies start off lean and gradually acquire more employees, not all of them the best. Maybe the pandemic was a chance to do a reset. We were working on a house then and had to stop as everything was shut down. The contractor told us that everyone left to join families or to return to their home towns. Maybe it just takes time to get them back?
Is this just total spending on construction?
Notably, the construction materials price index is way up over the same time period. https://fred.stlouisfed.org/series/WPUSI012011
It spiked with COVID and never went back down. Therefore, more spending on more expensive materials (and this cost is passed along to the consumer in the form of higher prices for new homes and additions, which in turn gets baked into home value appraisals as the value of finished square footage is based on the cost to build and purchase finished square footage...) leads to more total value in product sold. Combined with the hit to employment numbers (which is part of why costs are high!) and you have the reason why productivity, as a per-worker measurement, is higher.
Pretty simple stuff.
Good call.
I was thinking the same thing. Kevin uses "inflation-adjusted" figures, but that would be total inflation, I think. So if building materials and other costs of construction have risen faster than general inflation, we'd still see the effect you cite, especially if employment in the sector is down.
I think increases in materials prices are what you see in the second graph, that tracks with the massive supply chain increases we've all seen.
The drop in workforce is a combination of boomers retiring and aging out of the industry and the lack of new entrants, which is starting to pick up but there's still a huge loss of institutional knowledge. That loss of institutional knowledge may help though, as the younger entrants are more likely to use technology that older workers won't.
Millennials are still infected by their parents disdain for non-office jobs. Gen Z seems to get that you can live well without sitting in an office on Zoom calls all day.
The loss of institutional knowledge is pretty widely recognized as a slow-motion crisis by everybody I speak to in the trades, as well as developers. It's a net loss.
I think you're making an error by using total construction output ($) divided by total employees, when you could track BLS' MPU0023062 (08) series.
In my area I have seen quite a bit of full or partially pre-fabricated buildings go up. I local 84 unit condo building was put together in no time with pre-fab wall framing and a local hotel looked lie it was built with almost entirely prefabricated room units bolted, plumbed, and wired together on site. I would imagine that increases productivity somewhat.
I agree. There have been some significant changes in the construction industry over the last decade. It seems likely to me that covid caused a reset that accelerated these trends.
In addition to modularization the use of engineered wood products for multi-story construction has sped up the construction of multi unit housing and small mixed use projects.
The BLS/Census Bureau data on construction workers that comes from the Current Population Survey does include unauthorized immigrants. In fact, about 15-16% of workers in construction occupations in these data sources are unauthorized immigrants. Among roofers, drywall installers, plasterers, it's over 30% in these data sources
As always, the answer is "AI":
https://www.forbes.com/sites/quickerbettertech/2023/11/06/ai-techs-disrupting-construction-companies-a-candid-overview/?sh=4cb3fd0e2f98
Nope. It's the immigrants. You can't build anything in this country without Mexicans. Not even border walls.