Despite the positive year-over-year comparisons, economists said the numbers are beginning to make real the specter of a recession that’s hung over the market for months.
“Signs of economic slowing have become more pervasive over the last several weeks and are now increasingly reflected in labor market data,” said ABC Chief Economist Anirban Basu in a statement. “In response to rising interest rates and declining asset values, corporate layoff activity has been on the rise.”
Part of the problem is that while companies have been slowing their feverish hiring pace, construction wages are still projected to rise swiftly by the end of the year, a factor that could further constrain construction companies’ profits.
In his weekly Data DIGest newsletter, AGC Chief Economist Ken Simonson pointed to projections from Saline, Michigan-based construction compensation consultant PAS, which said 2022 staff pay predictions are increasing each month and may hit 5% by fall. If that happens, it would far surpass the 3.4% construction wage increase projection made by consultancy WorldatWork at the beginning of 2022.
Driving those wage increases, aside from widespread inflation, is the overall growth of open jobs in the industry.
ABC’s numbers show that despite the pullback in May, the jobs opening rate, which measures unfilled positions compared to all jobs, has now surpassed its 2019 pre-pandemic peak.
It came in at a hot 5.4% in May, down from 5.5% in April, but still higher than the 5.3% rate seen in April 2019.
That pressure to hire, and pay higher wages, has led to erosion in contractors’ profit projections. From that perspective, any pullback in demand may have a silver lining because contractors won’t need to throw as many unskilled laborers at their projects, which cuts into productivity.
“Contractors have seen significant pressure on their profit margins, according to the most recent data from ABC’s Construction Confidence Index, and any easing of labor shortages will provide much-needed relief,” Basu said.
The pullback in spending in May, while still slight in absolute numbers, was pervasive across different building segments.
“The downturn in nonresidential construction spending was widespread,” AGC said in its release, noting that some of the largest segments, including power, commercial construction — which includes the once surging warehouse segment — and education all declined.