After more than a decade of recovery, construction is rocketing to new highs
Why is rate-sensitive construction doing so well? Thank Uncle Sam and Sam Altman.
The twin tech-driven investment booms of the moment — data centers for AI and chip fabrication plants — are helping contribute to the most consistently strong job market for construction workers since the home-building frenzy of the early 2000s.
Numbers from May show that the industry added 21,000 jobs, with the majority of that growth (+13,000) coming from specialty contractors working in the non-residential sector. Since 2021, the industry has added jobs in all but two months. In the last year, construction jobs have grown by 250,000.
The steady pace of growth is a far cry from the painful stagnation seen in the sector after the housing bust, which was followed by the financial crisis of 2008 and one of the deepest recessions in recent memory.
That’s worth noting because, as some might remember, that period was characterized by a financial climate of super low interest rates. Those rates failed to generate much of a rebound as the industry had just built way too much housing.
This time around, the construction boom is coming despite the fact that the Fed delivered the sharpest series of interest-rate hikes since the early 1980s. Why is construction — supposedly one of the industries most sensitive to interest rates — doing so well?
Think of it as a joint venture between Uncle Sam and Sam Altman. During and after the pandemic, the federal government pumped trillions of dollars into the economy, much of which was earmarked for heavy construction projects — road building, water and sewer construction, and new buildings — that, because of lags in planning, permitting, and contracting, are still working their way through the US economy.
For instance, the $280 billion bipartisan CHIPS Act, signed into law in August 2022, is still providing a significant boost.
At the same time, the explosion of excitement surrounding AI has kicked off a parallel rush to build out the data-center and energy infrastructure needed to deliver AI computing power.
“AI is driving not just chip manufacturing, but also data centers. We're seeing that,” Robert Pragada, CEO of engineering firm Jacobs Solutions, told analysts in his company’s post-earnings conference call. “The CHIPS Act money has now been delivered to the market.”
The result? An unemployment rate below 4% for experienced construction workers, roughly where it’s been since late 2021. On the other hand, it’s not like this is some sort of paradise for the hard hats. Because of rising prices, the real — that is, inflation-adjusted — increase in the weekly earnings of a construction worker was less than 1% over the last year, as of April.
