Trade secrets

This is just like the Spanish Inquisition: Whatever numbers come out of the U.S. jobs report each month, no one ever expects them.

Least of all economists. In March the U.S. added 315,000 jobs, which “surprised economists with its strength once again,” noted CNBC. The consensus forecast had been for 214,000 new jobs. In April we gained 175,000 jobs, “much less” than “the 240,000 estimate from the Dow Jones consensus,” reports CNBC.

Here’s the weird thing: No matter which direction economists miss their monthly employment forecasts, it’s not bad news. If we overshoot the forecast, all those new jobs boost the economy and consumer sentiment.  If we undershoot, the Federal Reserve will decide that further interest rate hikes are not necessary.

The unemployment rate rose from 3.8% in March to 3.9% in April, but that’s no big deal. That just means more people are actively looking for work. The bad news is that inflation refuses to slip below 3%, and has actually been on the rise since the beginning of the year. As of March we were at 3.5%, which means interest rate cuts are not likely anytime soon. 

“Minneapolis Federal Reserve president Neel Kashkari said Tuesday (May 7) that the central bank will need to hold interest rates steady for an ‘extended period’ that may last through the rest of the year,” reports Fox Business.

As of May 2 the average rate on a 30-year fixed mortgage was 7.22%. That’s high enough to lock a lot of people out of the market, according to the NAHB/Wells Fargo Housing Opportunity Index. In 2012, 78% of median-income households could afford to buy a median-priced home. Right now just 38% can.

Yet the housing market is holding up better than that number would suggest. Both new and existing home sales are down. But existing home sales have been hovering around the 4 million mark since late 2022 and appear to have bottomed out. New home sales have been up YoY every month since Apr 2023 and are running slightly above their 20-year average.

Housing starts look even better. Total starts were down 9.1% in 2023, and they’re projected to be down a little more this year. But the problem is all multifamily. As of March, multifamily starts were down 44.3% YoY. Single-family was up 21.2%.

The general consensus among forecasters is still that housing will start to recover in 2025. And no, they aren’t the same forecasters who get the jobs report wrong every month.

Assuming they’re correct, that probably means we’re about to run smack into the same dilemma we faced during the mini-boom of 2021-22—namely, how are we going to get houses built fast enough to meet demand?

Even by the most conservative estimates, we’d need to build roughly 2.1 million new units per year for the next decade to catch up to population growth. During the 2021-22 run, starts briefly jumped to 1.8 million annualized. But completions never cracked the 1.6 million mark due to a shortage of skilled labor, mostly framers.

For a while, everyone thought offsite construction would be the answer. Everyone except builders, that is. Panels are catching on in MFLC, but offsite’s market share in single-family is under 5% and falling, according to Home Innovation Research Labs surveys.

Says HIRL, “Many builders believe…that site-building remains a lower cost, more flexible, and easier-to-manage way to build homes.” When NAHB asked builders about a long-term solution to the trade labor problem, only 7% chose offsite. Three out of four said the answer is to recruit and train more tradespeople.

That has been an uphill battle to say the least. The decline of unions in the 1980s pushed pay scales down. The rise of the tech sector in the 90s drove young workers toward white-collar jobs that required college degrees. In the mid-1990s, American Demographics magazine asked high school seniors to rank their preferred career options. Out of 254 choices, carpenter ranked No. 253, just ahead of cowboy.

In the housing boom of the early 2000s, builders filled the gap with immigrant labor. Roughly a quarter of them were undocumented, which distorted the labor market even further by opening the door to employment abuses.

A 2019 study from MIT found that “in addition to the low wages and few benefits employers in residential construction offer, the sector is characterized by cash-only payments, wage theft, the exploitation of undocumented workers, unsafe jobsite, and workers’ compensation and tax fraud.”

It’s probably no wonder that the construction trades earned a reputation as a haven for high school dropouts and ex-felons, as one NAHB official described it. Then the crash of 2008 hit and mass layoffs drove workers out of the industry. According to NAHB, roughly 15% of native-born tradespeople never came back.

Since then, builders have scrambled to find workers, and naturally they’ve been forced to up the ante. The median hourly wage for production workers employed by framing subcontractors has jumped 68% over the past ten years.

HIRL thinks that may ultimately provide a boost to panelization. “With labor cost and availability conditions deteriorating rapidly in recent years, the cost picture for offsite housing may soon be changing in its favor.”

That’s certainly a possibility. But if rising wages drive a comeback in trade careers, it may be that builders will decide the extra flexibility they get with stick framing is worth the additional money.

We may find out soon. A recent Wall Street Journal article reports that “enrollment in vocational training programs is surging” while four-year college enrollment has been flat. Since 2018, the number of students studying the construction trades is up 23%.

It’s a Gen Z thing, says WSJ, driven by a number of factors. First and foremost, the money: Payroll provider ADP told WSJ the median wage for construction new hires is currently $48,089 vs. $39,520 in professional services. Plus, construction wages are rising faster—up 5.1% in 2023 vs. 2.7%.

It’s still true that white-collar professions requiring a bachelor’s degree tend to pay more over time than blue-collar jobs. But not always—plus, those extra wages are partially offset by the cost of a college degree.

From The Wall Street Journal, 04.01.2024

The cost of an education is another factor driving interest in the trades. The average all-in cost of a four-year college degree (tuition, books, supplies, living expenses) is currently $104,108. A two-year vocational school degree averages $32,000 to $34,000, and sometimes you can find an apprenticeship program that actually pays you to learn the trade.

A third factor may not be obvious to Baby Boomers or GenXers, but it is to Gen Z. Everyone talks about how AI will change the way we work. Older workers may not be affected, but if you’re in your twenties there is a very real possibility that a lot of jobs will be eliminated by AI before you’re 40. White-collar jobs are far more likely to be affected than blue-collar work with a physical component.

In fact, physical work may actually be a draw for Gen Z. Tanner Burgess, a 20-year-old welder profiled by WSJ, decided against college during COVID, when he saw his tech worker parents “gaze at their computers all day and realized he didn’t like the idea of spending his life seated before a screen.”

Welding offered job security, a six-figure income, and the satisfaction of a job well done. “I’m physically doing something and there’s a sense of completion,” Burgess told WSJ. Plus, it just looked like fun. “I thought it was cool because it had a lot of fire.”

Rising wages and the prospect of an extended housing boom to make up for 15 years of underbuilding are making construction an attractive career choice for Gen Z. Over the past decade, the number of full-time carpenters in the U.S. is up 32% and approaching levels not seen since the early 2000s. According to WSJ, the median age of a carpenter has fallen from 42.2 to 40.9.

We still don’t have enough framers, but there is a light at the end of the tunnel. And it’s apparently not a fire.

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