Recent Employment Trends in Residential and Nonresidential Construction: During and Following the 2001 Recession, as Consumer Investment and Business Investment Diverged from Their Usual Patterns, Residential Construction Employment Increased and Nonresidential Construction Employment Declined

Article excerpt

The construction industry encompasses a collection of diverse, specialized smaller industries, each serving different groups and providing different services. Although differing in timing, business and employment cycles across these subindustries have tended to follow similar patterns, rising sharply in response to economic expansions and declining in response to contractions. However, during and following the recession of 2001, two divergent and historically atypical employment trends emerged among construction industries, with those serving residential customers thriving, and those serving nonresidential customers stagnating or declining. (1) This article analyzes trends in construction employment from 2001 to 2005, (2) with special attention being given to the measurement of residential and nonresidential components. (3)

Construction employment

Construction is an extremely cyclical industry that typically has suffered recessionary employment declines exceeding, in both depth and duration, those in other industries. During and following the four recessions that took place from 1973 to 1991, employment declines in the construction industry averaged 16.2 percent, as opposed to 2.0 percent in total nonfarm industries, excluding construction. (4) In addition, employment declines in construction over this period lasted about two and one-half times as long as those in other industries. (5) (See chart 1.) However, in 2001, construction experienced an employment decline that was mild by historical standards (3.0 percent), while other nonfarm industries combined experienced a more typical decline (2.1 percent). Furthermore, construction's 2001 employment contraction was substantially shorter in duration than that in total nonfarm, excluding construction--another departure from historical patterns. This pattern carries through to job recovery, with construction recovering jobs lost in the downturn much more quickly than usual, and other industries recovering much more slowly than usual. (See table 1.)

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Differences from trend in the 2001 recession reflect job loss and job recovery inconsistencies across construction component industries, with overall construction employment being pulled in two different directions. Largely mirroring trends in the larger economy, component industries catering to the needs of consumers--the residential market--experienced steady employment increases. Construction industries that focused on the needs of business and government the nonresidential market--experienced steady employment declines. (See table 2.) It is not unusual for trends in residential and nonresidential construction to vary somewhat; however, the magnitude of their divergence in the 2001 recession is historically unique and reflects the unusual nature of the recession itself.

A business recession

The recession of 2001 has been called a "business recession," an economic downturn primarily characterized by sharply curtailed business investment. Cutbacks in business spending and--to a lesser extent--government spending were offset by robust spending among consumers. This was especially true in the construction industry, where divergent trends emerged in residential and nonresidential fixed investment during the recession of 2001. (6) (See charts 2 and 3.)

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Historically, residential fixed investment began falling well before the peak in the business cycle. On average, it returned to the peak level 10 quarters after the business cycle peak. However, in 2001, residential investment was still growing at the business cycle peak and continued growing throughout the recession. Especially notable is the fact that for each of the 6 quarters following the 2001 business cycle peak, residential investment exceeded its maximum for the prior four business cycles.

In 2001, nonresidential investment was somewhat stronger than average immediately before the business cycle peak and remained about average 2 quarters into the recession. …