UPDATED AT: August 23, 2024
The construction industry saw notable developments in July 2024, driven by a mix of regulatory incentives, market conditions, and ongoing projects.
The CHIPS and Science Act, passed in August 2022, has significantly boosted the construction of manufacturing facilities across the United States. Since the legislation’s enactment, there has been a surge in activity, especially in the eastern half of the country.
The increase in construction activity in the manufacturing sector is indicative of a broader trend of growth in the industry. This surge is expected to drive higher spending, create jobs, and stimulate further economic activity across the sector.
As July comes to a close, the construction industry has witnessed a series of impactful developments. This month's industry report highlights key data in construction trends, mortgage rates, job growth, and the broader economic implications tied to the sector.
In July, the residential construction sector added 9,100 jobs. The construction industry saw a net increase of 25,000 jobs for the month, with a year-over-year gain of 239,000 jobs, reflecting a 3.0% growth.
Nonresidential construction played a significant role in this growth, adding 16,200 jobs. This segment experienced increases across all subcategories: specialty trade contractors gained 11,300 jobs, heavy and civil engineering saw an addition of 2,900 jobs, and nonresidential building added 2,000 jobs.
Despite the positive job numbers, the industry is facing challenges as the construction unemployment rate increased from 3.7% in June to 3.9% in July. Concurrently, the broader unemployment rate across all industries rose from 4.1% to 4.3%.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development have published the seasonally adjusted annual rates (SAAR) for building permits, housing starts, and housing completions for July 2024. The key data is summarized as follows:
Building permits were issued at a rate of 1,396,000 units, marking a 4.0% decrease from June 2024 and a 7.0% decline from July 2023. This decline indicates a slowdown in the approval process for new construction projects.
The number of single-family permits remained stable at 938,000 units, suggesting that while overall permit activity has decreased, single-family construction remains consistent.
Housing starts were reported at 1,238,000 units, reflecting a 6.8% decrease from the previous month and a significant 16.0% drop from the same month last year. The reduction in starts highlights a notable slowdown in the initiation of new residential projects.
Single-family housing starts fell by 14.1% to 851,000 units, underscoring a sharp decrease in new single-family home construction.
The rate of housing completions was 1,529,000 units, down 9.8% from June 2024 but up 13.8% from July 2023. This increase compared to the previous year suggests that despite a slowdown in new starts, the completion of existing projects is accelerating. Single-family completions were relatively stable at 1,054,000 units, with only a minor 0.5% decrease from the previous month, indicating continued progress in finalizing single-family homes.
In July 2024, mortgage rates remained steady at 6.59%, maintaining the lowest level since May 2023, as reported by Bankrate’s latest lender survey. This rate has stabilized just below the 7% mark, a decline from previous months and the first instance of the average 30-year mortgage rate falling below 7% since February 2024.
This decrease in mortgage rates is attributed to growing optimism that the Federal Reserve may implement rate cuts in the near future. The stability of mortgage rates aligns with recent consumer price index (CPI) data, which indicates that inflation has dropped below 3% for the first time since 2021. The combination of lower inflation and the potential for rate cuts has contributed to a more favorable environment for borrowing, impacting both prospective homebuyers and the broader housing market.
As the U.S economy shows signs of slowing, the construction industry faces several challenges. According to Anirban Basu, Chief Economist at Associated Builders and Contractors (ABC), the country appears to be heading into a recession. While many economists have long predicted a downturn, recent economic indicators suggest a more pronounced shift.
Unemployment is rising quickly, consumer spending growth is slowing, and U.S equity markets are experiencing substantial losses. This environment points to growing concerns that the Federal Reserve may have delayed necessary interest rate cuts.
Despite these troubling signs, the construction industry managed to add 25,000 jobs in July. This can be explained by the historical lag in nonresidential construction performance, which typically trails the overall economy by 12 to 18 months.
According to ABC’s Construction Confidence Index, contractors remain optimistic about the next six months. Recent data from June also suggest that many construction sectors are already entering a period of slowdown.
One notable exception is construction related to manufacturing, which has seen significant growth due to substantial investments in chip-making facilities and other industrial projects. These projects, bolstered by federal subsidies, contrast with other construction sectors that do not benefit from such support and are likely to face greater challenges as economic conditions and borrowing costs remain unfavorable.
The July report highlights the mixed signals in the construction industry and the broader economy.
While job growth and strong activity in certain sectors like manufacturing are encouraging, the rise in unemployment and signs of an economic slowdown suggest that the industry may face challenges ahead.