Construction Labor Market is Cooling

Due to slowing home construction and elevated interest rates, the count of open construction sector jobs continued to decline in July, per the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS). However, this shift lower is also consistent with a cooler overall labor market, which is a positive sign for future inflation readings and the interest rate outlook.

In July, after revisions, the number of open jobs for the overall economy decreased slightly from 7.91 million to 7.67 million. This is notably smaller than the 8.81 million estimate reported a year ago. Previous NAHB analysis indicated that this number had to fall below 8 million on a sustained basis for the Federal Reserve to feel more comfortable about labor market conditions and their potential impacts on inflation. With estimates now measurably below 8 million, interest rate cuts from the Federal Reserve are at hand (Indeed, the yield curve reversed its inversion for the first time since June 2022 today, although this reversion can also be a bond market signal for some concern for future macro data).

As the Fed eases monetary policy, the demand for new construction will expand. Thus, a reversal for the current soft readings for construction labor will occur in the quarters ahead. This means the underlying skilled labor shortage is likely to persist during the coming years.

In July, the number of open construction sector jobs shifted notably lower from 299,000 in June to 248,000. Elements of the construction sector have slowed as elevated interest rates held, most notably multifamily development. This slowing has somewhat reduced demand for construction workers, lowering the job opening count for the construction industry. The open job count was 351,000 a year ago.

The construction job openings rate fell to 2.9% in July, the lowest rate since March 2020. The job openings rate has trended lower as the number of single-family and multifamily residences under construction has declined. This is a cyclical effect that will likely reverse later in 2025.

The layoff rate in construction increased to 2.1% in July from 1.3% in June as the labor market slows. The quits rate in construction increased to 2.1% in July from 1.6% in June. The rise in the layoff rate is consistent with a slowing construction labor market.