The Remarkable Gap Between Spending Growth and Employment Growth in Housing
February employment growth bounced back to a relatively strong 379,000 net new jobs gained month over month, and the national unemployment rate dropped to 6.2%, a level lower than the average post great recession recovery rate of 6.4%.
However, despite these signs of labor market health, there is evidence that job growth is not happening where there is a demand for job creation.
This evidence comes in the form of the ratio between year over year growth in Residential Construction Spending and Residential Specialty Trades Contractor Jobs. While the two don’t capture identical economic activity, they do closely track one another, with the ratio of approximately 4:1 on average through much of the post great recession recovery period.
However, in the last couple of months the ratio has diverged dramatically, spiking recently to around 45:1, meaning that the growth in residential construction spending is 45 times greater than the growth in residential specialty trades contractors’ employment.
What are the implications?
First, that materials prices have skyrocketed for many different types of goods and building materials used in both residential construction and remodeling.
And second, that we need to do more to alleviate the shortage of skilled labor in these trades.
Some Workers are Likely Moving Between Sectors
There is likely some efficient movement between sectors taking place.
For example, there is less demand nationally for nonresidential construction and sure enough, we see employment growth in residential building is currently outpacing growth in nonresidential building considerably since the onset of COVID-19.
Movement between sectors makes sense here, since much of the skillset between the two residential and nonresidential building – framing, carpentry, plumbing, general construction knowledge, etc. – are closely related. So, tradespeople have an easier time switching their industry subsector without switching their occupation.
However, other sectors that are not typically thought of as immediately adjacent to home services and residential construction – such as leisure and hospitality services – have the potential to shift some of their workforce to the skilled home trades, too.
The industry is filled with opportunities, and room for employment to grow considerably. Despite the strong job growth in February for leisure and hospitality, the sector is still being hit hard. While the skillsets between the leisure/hospitality and home services may not be immediately transferable, skilled trades employers are less concerned with pre-existing experience among potential recruits than they are with a positive attitude and a desire to work (for a full breakdown of the most desired attributes you can read our annual Skilled Trades in America Report).
These potentials, combined with further evidence from February’s jobs report, continues to show us the need to transition more workers into the skilled trades.