July’s job gains ‘shockingly’ strong as construction adds 32K positions

Dive Brief:

The construction industry added 32,000 jobs on net in July, according to data from the U.S. Bureau of Labor Statistics. On a year-over-year basis, industry employment increased by 4.2% or 311,000 jobs, according to an analysis from the Associated Builders and Contractors.
Overall, nonresidential construction employment increased by 18,300 jobs, with specialty trades gaining 10,300 positions. The nonresidential building category added 4,900 workers, while the heavy and civil engineering sector gained 3,100.
For all industries, job gains were profoundly better than expected, as U.S. employers added 528,000 positions, more than twice the consensus forecast of 250,000, with the unemployment rate falling to 3.5%, which matches the lowest rate seen since the late 1960s, according to ABC.

Dive Insight:

Anirban Basu, chief economist for ABC, said the numbers held some big surprises, but not all of them were good.

“Today’s employment report was expected to show an economy not yet in recession but at least headed in that direction,” he said. “Shockingly, that did not come to pass.”

The upside surprise actually drove stocks lower Friday, as the news is expected to give the Federal Reserve more motivation to continue to raise interest rates later this year.

While the overall job gains were positive, Basu said the broader economic environment still poses significant challenges. For months, economists have been warning of recession, a possibility that was underscored when U.S. GDP contracted for two consecutive quarters through June.

“Yes, the construction industry also added a healthy number of jobs in July, but the impact of macroeconomic deterioration is already apparent in other construction data,” said Basu. “Sky-high materials prices and shortages of skilled construction workers have forestalled a growing number of projects by suppressing demand at a time when the cost of delivering construction services remains elevated.”

He reiterated that while companies’ backlogs remain healthy, that may not be due to additions in their pipeline of work, as much as tepid progress on jobs in the current environment.

“While backlog remains elevated from a year ago, this may have as much to do with the fact that projects are taking longer to complete than with underlying economic strength,” said Basu. “The expectation is that backlog will begin to fade for many contractors as the economy becomes less supportive. At the heart of the issue is the Federal Reserve, which will continue to raise interest rates as long as the labor market retains this level of momentum.”