Construction Tight labor in the construction market

HAPPENING IN THE USA

Tight labor in the construction market BY ISAAC COHEN*

The best indicator of strength in today’s US economy is the unemployment rate, which at 3.7 percent in August is the lowest in almost fifty years. Together with an average rate of inflation below the central bank target of 2 percent and an average annual growth rate of around 2 percent, all these indicators reveal that, after 10 years, the US economic expansion has become the longest on record.

Tightness in the labor market means that, in certain sectors, companies are starting to have difficulties hiring workers. For example, some companies are demanding less requirements and are looking for workers outside the usual sources. As declared by an executive from a pencil company, quoted in The New York Times (09/07/19), “We don’t have any educational requirements—no degrees or anything. We’re just looking for someone who is hard-working.” Also, companies are improving training programs, which allows hiring more workers with limited or without experience.

In a labor market where the number of workers for hire is decreasing, in theory, salaries would have to increase, in order for employers to retain their workers and attract new entrants into the workforce. However, salaries have not increased enough, at a rate of around 3 percent a year, as revealed by the low rate of less than 2 percent inflation. Therefore, no relationship is in sight yet between low unemployment and higher wages, which should push inflation upward.

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Meanwhile, there is evidence that the US economy is slowing down. For instance, average monthly job creation in 2018 was 223,000, while during the first six months of this year the same average decreased to 172,000. This indicates that job creation is cooling down, to which may be contributing the vanishing of the stimulus provided by the tax reduction approved in 2017.

There are also other indications of a slowdown. The number of jobs created in August was only 130,000 and this figure includes 20,000 persons hired temporarily by the government to work in the census. Also, certain sectors are suffering the consequences of the imposition of tariffs against Chinese imports. The manufacturing index, from the Institute for Supply Management in August decreased to 49.2 percent, from 51.2 in July and 59.5 in September 2018, indicating a contraction as the figure fell below 50 per cent. From January to August this year, 55,000 new jobs were created in manufacturing, down from 162,000 created in the same months of last year.

By contrast, those non-manufacturing sectors that are less dependent of international trade have created more jobs and continue hiring vigorously. This is the case of the services sector, including healthcare (+24,000), professional and business services (+37,000), financial activities (+15,000). In other services there was almost no change in hiring during

August. This was the case in sectors such as construction, leisure and hospitality, where there is a high concentration of Hispanic small companies. For instance, 27 percent of all Hispanic companies operate in the building trades and construction sector. Peruvian American entrepreneur Gustavo Reyes, President and CEO of Century Builders Management, from Nassau County, New York, says “the supply of Hispanic workers in construction has almost disappeared. Today, the bigger companies hire them, offering better salaries. Nobody works in construction for the minimum wage of $15 an hour. To hire a worker in construction in the State of New York you have to offer more than $31 an hour.”

To conclude on a positive note, for certain minorities the unemployment rate remains above the national average, but it has been approaching that average. For instance, unemployment for African Americans decreased 0.8 percent from last year, to reach 5.5 percent in August, the lowest on record. The same is the case for unemployment among Hispanic Americans, at 4.2 percent, down by 0.3 percent in August, also a record low. In August as well, unemployment of White Americans was 3.2 percent and of Asian Americans was 2.8 percent, both under the national average.

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*International analyst and consultant, former director of ECLAC Washington. Commentator on economic and financial issues for CNN en Español tv and radio, Univision, Telemundo and other media