Understanding the big secret in construction labor data
Part of our mission at Road Dog Jobs is to help construction companies navigate the construction labor market more strategically. We know that that there are ways that you can execute better than the competition and give your projects a better chance for success.
One of the best ways to take on the construction labor market is to understand how the market works. And he most fundamental thing to know about construction employment is that construction is a seasonal business. This idea makes sense to anybody in the industry. Still, by understanding how the labor market seasonality really works can help you plan your labor strategies so that your projects reap the rewards of filled jobs.
The surprising part about construction labor data used by most industry outlets is that the data doesn’t reflect the true employment situation. The “big secret” is that if you want to really understand what’s happening in construction labor, you need to look a completely different data set than most people are using. You need to be looking at non-seasonally adjusted construction employment data.
We’re going to dive into the numbers to help you understand what’s really happening in the construction labor market.
How does the Bureau of Labor Statistics Report Construction Employment Numbers?
The Bureau of Labor Statistics (BLS) reports construction in two main ways.
- Seasonally adjusted. This data set uses statistical methods to flatten out the natural seasonality of employment data.
- Non-seasonally adjusted. This data set does not adjust the data for seasonality. This is the “real” employment data in a particular month.
By reporting seasonally adjusted numbers, the data has less volatility in it and this data produces a nice even trend. Nice, flat, non-volatile numbers are very helpful from a macro perspective. For example, when employment drops in the winter each year, this is not necessarily indicative of an industry problem (because this happens every year and is expected) and the seasonally adjusted numbers are able to make better sense of the overall trend.
Here is a graph that compares seasonally adjusted employment data against non-seasonally adjusted employment data.
The graph really shows the difference between the two data sets. Real construction employment – not adjusted for seasonality – is represented by the dashed blue line and follows a predictable seasonal up and down pattern. The red line shows how seasonally adjusted construction labor data follows a much less volatile pattern. At times in the year the seasonally adjusted shows more people employed than non-seasonally adjusted data, at other times it’s the opposite.
What does the construction season look like each year?
As the graph shows, each year construction employment follows a predictable cycle. The year starts out in January and February with the lowest employment levels of the year. These levels steadily rise through the year with a peak in either August or September. Following this late summer peak, employment levels fall off a cliff in October, November, December, January, and February to their eventual winter trough.
Then the construction employment cycle repeats.
This is not news to most people in the industry. However, most industry reports use seasonally adjusted data. And while this data is great for macro industry trends, it does not show the reality of the construction labor market in a particular month.
What is the problem with seasonally adjusted construction labor data?
This problem with seasonally adjusted employment data comes for companies that are trying to understand how to make strategic decisions based on the labor data. Seasonally adjusted data is not the best measure of the labor market at a point in time. Seasonally adjusted data is the best set for trends, it is not the best set for executing a near term labor strategy.
Which data set does Total Available Construction Labor (TACL) use?
Road Dog Jobs developed the metric called Total Available Construction Labor (TACL). This metric compares the unemployed construction workforce against open construction jobs to determine if there are enough people to fill open jobs. Historically, there have been about 500,000 more unemployed construction workers than open jobs. Here’s a look at Total Available Construction Labor through November 2021. This shows how over the past several years the industry is seeing a dramatic shift toward lower and lower TACL numbers. This is indicative of an historically tight labor market.
To develop this metric, we use non-seasonally adjusted employment data. We do this for two reasons. First, the BLS does not seasonally adjust unemployment rate. That means that unemployment rate follows a similar (though inverted) trend as construction employment. Here’s a graph of the average unemployment in construction over the past twenty-two years.
The second reason that we use non-seasonally adjusted employment data for TACL is that the metric is intended to give the most actionable information possible. So by showing the reality of construction employment on a month to month basis, industry leaders have better decision making on how their projects could be impacted.
If you’re interested in understanding more about how to evaluate unemployment data in construction, we’ve written a guide about that.
How can you execute smarter labor strategies?
Building solid labor strategies will separate you from the competition. Most construction companies are reactive in their hiring. Reactivity isn’t really anybody’s fault, either. The way projects come together quickly can make it hard to get too far ahead of the hiring trend.
However, the companies that understand the labor market best are going to be able to be more strategic how they execute their labor strategy.
If you’re looking for a deep dive into building world class construction labor strategies, we’ve written a detailed guide. It’s long and it’s detailed but there are solid recommendations that can help you separate your company from the competition.
As far as how the labor market impacts your strategy, the simple idea is to understand how your hiring overlap with when labor is more (or less available).
- Review when you’re planning to hire. This article has discussed how labor employment is at its low point in January and February – and at its high point in August and September. How do your hiring plans line up with the ebbs and flows of the construction labor market? For example, if your project is hiring in mid-February, that’s a low-risk time to be hiring. You will have a higher likelihood of filling your jobs.
- Review where your people are coming from. Of the peak numbers you’re looking to hire, how many are currently on your payroll? Are you needing to find people from other companies or projects? Or is your hiring plan about transferring people from one project to the next? This question will drive your most important actions toward either developing plans to attract craft professionals to your jobs or to dive into the completion schedules of ongoing projects to make sure you’re on track to transfer people from one project to the next.
- Take advantage of counter-intuitive hiring times. This article looks at entirety of the construction industry – all 7.5 million people who work in the industry. However, construction is made up of dozens or hundreds of subsets, niches, and micro industries that each have their own hiring dynamics. In the fossil power maintenance market (where I came from in my previous role) hiring ramps up from early January through early April. Over those months hiring becomes increasingly difficult. By early April, hiring is almost impossible and finding people becomes a mission in stealing from other projects. However, in mid-April as the first round of projects is coming to an end there’s a window of available labor. Hiring becomes easier in late April than it was in late March. This is counter-intuitive but is a reality in that market. There are certainly similar situations in the markets that you play in that you can build hiring strategies to take advantage of.
In the company I used to work for, finding traveling welders was the biggest problem each year. We knew that if our labor challenge would almost always be defined by the number of welders, we were able to find. By understanding the labor market – and the rhythms and cycles in your particular market – you’ll be able to make better decisions, hire smarter and help your projects succeed when your competition is struggling.