Factors currently driving production

By |  May 15, 2018
Photo courtesy of Vulcan Materials

Photo courtesy of Vulcan Materials.

We are at full employment for the first time in decades, even though we are not sure what that means.

Because so many people have dropped out of the labor force during the past decade, the available pool of workers is smaller. This explains why the number of job openings is higher than the job seekers for the first time in almost 20 years.

This is another example of the positive changes in the economy during the past 18 months. It also helps to explain why finding more qualified construction workers is so difficult.

Even with the good economic news, construction activity, while very high, remains well below the prior peak in 2006. Part of the reason we are still lower than the prior peak is the slow pace of activity for 12 of those 17 years. Part of the reason is the structural and social changes in our economy.

Some of these changes are less desire to own a home among millennials, building code restrictions, less square feet per office worker, more government spending toward social programs and away from infrastructure, and less migration.

Each of these works behind the scenes to reduce construction spending as a percentage of GDP. Going forward, some of these changes will diminish but not enough to cause a boom in new construction.

Nevertheless, today’s volumes are healthy. For the next few years, most of the gains will come from infrastructure and most of the funding will be from state and local sources.

Dr. David Chereb has many years of experience forecasting construction materials, and his web-based forecasting models have captured every major turning point in materials demand for more than 15 years. Chereb received his Ph.D. in economics from the University of Southern California.

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