Construction jobs abound despite drop in activity
By Andrew Osterland
July 17, 2007
There’s an apparent disconnect between swooning construction activity and employment in the industry. Despite the fact that housing starts for single-family homes—the biggest element of overall construction activity—were down 36% to 1.17 million in May, compared to 1.84 million in January of last year, employment in the industry had fallen by just 44,000, or less than 1%, from a cyclical peak of 7.73 million jobs last September.
“There could be a lag in the statistics, but the gap between construction activity and employment is unusually large,” said Joel Prakken, chief economist at Macroeconomic Advisers. Mr. Prakken, in fact, thinks the Bureau of Labor’s statistics could be missing steeper job cuts that have already occurred.
A study by his firm using data on 21,000 construction firms from Automatic Data Processing, which processes the paychecks of one in six Americans, suggest that construction jobs may already have declined by 156,000 and that further declines through the end of this year “should prove manageable.
”Based on statistical modeling, current construction activity combined with the Bureau of Labor numbers suggest another 246,000 jobs could be cut by the end of the year. If Mr. Prakken’s numbers are more accurate, the additional job losses would be on the order of 135,000.
Another reason for the large difference between government estimates of activity and employment could be the so-called “birth/death” adjustment, which adjusts the data for new companies in the market and companies that fold operations. The Bureau of Labor stats may be missing a lot of companies that have exited the market. “Official estimates can be off during sharp turning points in the market,” said Mr. Prakken.
Two other potential explanations of the gap are the impact of undocumented workers—of which there are many in the construction industry—and labor hoarding. There are no statistics describing the underground economy, but Mr. Prakken suspects that construction firms could be letting go undocumented workers before others on the payroll. Firms may also not want to lay off skilled workers.
“The firms know the industry will rebound,” said Mr. Prakken. “They may be reluctant to let people go.” Or they’re right about to start slashing payrolls in earnest.
July 17, 2007
There’s an apparent disconnect between swooning construction activity and employment in the industry. Despite the fact that housing starts for single-family homes—the biggest element of overall construction activity—were down 36% to 1.17 million in May, compared to 1.84 million in January of last year, employment in the industry had fallen by just 44,000, or less than 1%, from a cyclical peak of 7.73 million jobs last September.
“There could be a lag in the statistics, but the gap between construction activity and employment is unusually large,” said Joel Prakken, chief economist at Macroeconomic Advisers. Mr. Prakken, in fact, thinks the Bureau of Labor’s statistics could be missing steeper job cuts that have already occurred.
A study by his firm using data on 21,000 construction firms from Automatic Data Processing, which processes the paychecks of one in six Americans, suggest that construction jobs may already have declined by 156,000 and that further declines through the end of this year “should prove manageable.
”Based on statistical modeling, current construction activity combined with the Bureau of Labor numbers suggest another 246,000 jobs could be cut by the end of the year. If Mr. Prakken’s numbers are more accurate, the additional job losses would be on the order of 135,000.
Another reason for the large difference between government estimates of activity and employment could be the so-called “birth/death” adjustment, which adjusts the data for new companies in the market and companies that fold operations. The Bureau of Labor stats may be missing a lot of companies that have exited the market. “Official estimates can be off during sharp turning points in the market,” said Mr. Prakken.
Two other potential explanations of the gap are the impact of undocumented workers—of which there are many in the construction industry—and labor hoarding. There are no statistics describing the underground economy, but Mr. Prakken suspects that construction firms could be letting go undocumented workers before others on the payroll. Firms may also not want to lay off skilled workers.
“The firms know the industry will rebound,” said Mr. Prakken. “They may be reluctant to let people go.” Or they’re right about to start slashing payrolls in earnest.
Labels: construction, employment
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