As the U.S. construction sector navigates economic uncertainties, shifting labor dynamics are influencing the industry’s workforce demands and growth potential. A slowing labor market is signaling a moderation in inflation, which could lead to significant changes in monetary policy over the coming months. Construction business owners must stay alert to how these shifts will impact labor availability and costs, while also positioning themselves to thrive as demand for skilled labor resurges.

This article explores the latest insights from the U.S. construction labor market, the challenges it faces, and the opportunities that lie ahead for construction companies based on the latest HBI report.

The Current State of Construction Labor Demand

Recent data shows that while the overall demand for construction labor is softening in the short term, the industry will see significant long-term growth, driven by single-family construction and remodeling. As of now, there are about 8.3 million payroll construction workers in the U.S., with residential construction representing 3.4 million of this total. This number is expected to rise as the nation works to close its significant housing deficit.

The National Association of Home Builders (NAHB) estimates that 723,000 new construction workers are required annually to meet the needs of a growing housing market. This figure accounts for both industry expansion and the replacement of workers leaving the sector. Over the next few years, this need will culminate in over 2 million net new hires, spanning several key occupations such as carpenters, electricians, and equipment operators.

  • Overall construction payroll employment: 8.3 million, with residential construction accounting for 3.4 million jobs.
  • Annual labor demand: Approximately 723,000 construction workers needed each year.
  • Rising wages: Average hourly wages in construction have increased by 4.3% over the past year, with more notable gains in residential construction wages, which rose by 9% in June 2024.
  • Job openings: As of July 2024, open construction sector jobs declined to 248,000, down from 400,000 at the beginning of the year.

While current labor demand has softened, the long-term outlook remains strong, particularly in the residential sector, which will require more workers to close the nation’s housing deficit—estimated at 1.5 million homes.

Shifts in Workforce Demographics and Occupations

As the industry evolves, so too does its workforce. The makeup of the construction labor force has changed dramatically over the past decade. Traditional tradesmen, once the backbone of the industry, now represent a smaller share of the workforce, with the number of tradesmen dropping from 71% in 2005 to just under 61% by 2022. Meanwhile, there’s been a notable increase in high-skill positions such as computer, engineering, and science occupations, reflecting the growing need for technology and innovation in construction.

  • Decline in traditional tradesmen: Share dropped from 71% to 61% between 2005 and 2022.
  • Growth in skilled occupations: The share of computer, engineering, and science roles has doubled in recent years.
  • Women in construction: Now represent 10.8% of the workforce, showing steady growth.
  • Immigrant workers: Account for 24.7% of the construction labor force.
  • Younger workers: Share of workers under 25 has risen to 10.8%, but aging trends persist.

The aging of the construction workforce is another significant factor shaping labor trends. While the median age of construction workers is now 42, younger workers are entering the industry. The share of workers aged 25 and under has increased, although the prime working ages of 25 to 54 still dominate the sector at 67.3%.

Looking Ahead: Opportunities for Growth and Productivity Gains

Despite current economic headwinds, the construction sector remains poised for long-term growth, especially as interest rates are projected to decline in the coming years. According to the latest forecasts, the Federal Reserve is expected to reduce the federal funds rate by 250 basis points over the next 18 months. This will lower borrowing costs for construction companies, helping to revive the demand for both new builds and remodeling projects.

The anticipated drop in mortgage rates—potentially below 6% by 2025—will further fuel housing demand, particularly in the single-family sector. As the housing market rebounds, construction businesses must be prepared to meet this renewed demand by attracting and retaining skilled workers.

Investing in labor productivity will be key to long-term success. Productivity growth has lagged in the construction sector for years, but there are opportunities for improvement. By focusing on workforce education and training, businesses can address the skills gap and enhance efficiency on job sites. At the same time, reducing regulatory burdens could further support productivity gains, allowing companies to complete projects more efficiently.

Building a Future-Proof Workforce:

  • Invest in education and training: Boosting labor productivity will require enhanced training programs to close the skills gap.
  • Adopt technology: Embracing new technologies in construction can streamline processes and reduce inefficiencies.
  • Regulatory reform: Advocating for a reduction in regulatory burdens could help improve productivity and cost management.

A Smaller Step to Take Control of Your Future

The construction industry is evolving, and businesses must stay ahead. By investing in workforce development and leveraging upcoming economic changes, you can position your business for growth. Small Business Growth Partners (SBGP) can help you navigate these shifts with a personalized Business Diagnostic & Plan of Action (BPA). It’s a tailored approach to ensure your company thrives, no matter the market conditions.

Get Your BPA Today and secure your business’s success for tomorrow.