Author: Andrew Berger-Gross
Welcome to the January 2024 edition of NC Economy Watch: an update on what’s happening in the North Carolina economy and what it means for you, brought to you by the Labor & Economic Analysis Division (LEAD) of the NC Department of Commerce.
In this edition of NC Economy Watch, we assess current conditions in the construction sector. Despite preliminary data showing a decline in construction jobs, most signs continue to depict a construction sector that is active and growing, driven in part by a surge of investment in factories and infrastructure.
Higher Interest Rates Are No Match for a Growing Construction Sector
Construction is one of the most visible sectors of our economy, responsible for the built environment that shapes our daily lives. Construction is also a “canary in the coalmine” for our economy: every recession in the past 40 years (except the COVID-19 recession) has been preceded by a decline or flattening in the growth of construction employment. North Carolina’s construction sector experienced steep employment declines throughout much of 2023, raising a troubling question: could this be yet one more sign of a much-anticipated recession?
We often advise readers to avoid focusing too much on any one data point, and recent trends in North Carolina’s construction sector illustrate why. Monthly employment numbers from the Current Employment Statistics (CES) program are still preliminary when you first read about them in the news; these figures are later revised to incorporate new information that wasn’t available when they were first reported.
Construction employment tends to move up-and-down in cycles, and construction employment is currently rising nationwide, even though preliminary data depict a declining construction sector in North Carolina [Figure 1]. LEAD’s industry employment projections show that construction employment in North Carolina is expected to rise in the coming decade along with our state’s growing population and expanding economy.
Figure 1
Data on construction spending make clear that the United States is currently experiencing a building boom. Homebuilding declined throughout the latter half of 2022 as rising interest rates made new mortgages more expensive, but since then, stubbornly low inventories and relentless demand have given new life to the housing market, with residential building activity resuming its ascent in spring 2023 [Figure 2]. Meanwhile, throughout this period of weakness in homebuilding, overall construction spending has been bolstered by a spike in non-residential activity, including massive investments in manufacturing facilities and public works projects.
Figure 2
Our economy has proven surprisingly resilient in the face of higher interest rates. Part of this is due to a once-in-a-generation surge in federal government spending on infrastructure, microchips, and electrification, which has given our construction sector plenty of work to keep them busy. Another factor has been a nationwide housing shortage, which helped stem the decline in residential construction. A lack of housing inventory has also kept home values high and rising, giving homeowners the confidence to keep spending money on goods and services and helping prevent an economic recession.
These events demonstrate why it can be so difficult to make economic forecasts. In a normal environment, a rapid increase in interest rates would be expected to lead to a decline in construction employment and a downturn in the broader economy, but this time around, an unexpected wave of new federal government programs and non-residential investment caught many economic forecasters by surprise and helped stave off the worst-case scenario.
The data presented in this article also show how important it is to consult a broad range of indicators when assessing the health of our economy. While preliminary employment numbers, taken at face value, would suggest the bottom has fallen out of North Carolina’s construction sector, nationwide growth in construction spending and evidence that North Carolina remains an attractive environment for new residents and new businesses tells a far more optimistic story.
For inquiries and requests, please contact:
Meihui Bodane, Assistant Secretary for Policy, Research and Strategy
NC Department of Commerce, Labor & Economic Analysis Division (LEAD)