Public policy put in place points toward a tailwind for construction employment and manufacturing.
Aggregate hours workedFor evidence of this growth, we can look to aggregate hours worked, which is the number of employees times the number of hours worked. This proxy measure of economic activity and labor market growth allows us to compare activity in the major sectors of the economy and to compare growth rates of employment and production over time.
- Service sector: As of September, activity in the service sector, which makes up 81% of aggregate hours worked in the U.S. economy, is growing at 1.4% per year. This is compared to 1.2% at the end of 2019.
- Goods-producing sector: The goods-producing sector accounts for less than 19% of total hours worked and is comprised of the manufacturing sector (11% of aggregate hours), the construction sector (nearly 7%) and the resource extraction sector (0.6%).
- Manufacturing: The manufacturing sector’s post-pandemic growth beginning in 2021 was remarkable, with firms hiring at prolific pace while investing in productivity. This comeback included a period of 4% or more in aggregate growth last year compared with the 0.9% decrease at the end of 2019. But hiring tailed off this year as new orders drifted lower and as firms girded for a recession. Manufacturing aggregate hours are now growing at a rate of only 0.2% per year.
- Construction: In the construction sector, aggregate hours are growing at 3.5% per year compared with 2.2% at the end of 2019. From 2021 through June, construction spending accounted for the greatest share of gross domestic product growth of any two-quarter period on record. According to the White House Council of Economic Advisors, GDP expanded at an annualized pace of 2.15% over that period, with .53 percentage points coming from manufacturing construction. To put this in perspective, through August manufacturing construction alone resulted in a 90% increase, or $184 billion, over year-ago levels.
Construction employmentThe construction industry deserves a closer look, both as the predicate for resolving the housing shortage and for laying the groundwork for manufacturing growth. In terms of workers employed in construction, the industry has yet to recover from the dual shocks of the manufacturing recession and the pandemic shutdown. While the pre- and post-shock rates of growth appear to be close, a simple analysis suggests room to grow and little sign of that private investment is being crowded out by the government infrastructure and industrial policy programs. We are optimistic that the crowding in of public investment will serve as an incentive for risk taking around construction and serve as a magnet for prime-aged workers 25 to 54 looking for higher wages in construction and goods production. In fact, a report from the Treasury Department in June found the computers and electronics segment to be the dominant component of U.S. manufacturing construction. Still, construction for chemical, transportation, and food and beverage manufacturing is also up from last year. The report added that overall real nonresidential construction spending has increased by about 15% from November 2021, when the Infrastructure Investment and Jobs Act was signed, to April. We can see the impact of the legislation in the employment data through September, breaking down construction employment into its four segments.
- Residential buildings: 11.6%
- Nonresidential buildings: 11%
- Civil engineering: 14%
- Specialty trades: 63%