Should we be concerned about the rise in unemployment?

Should we be concerned about the rise in unemployment?

The jobs numbers are out. 

On its surface things look ok.

Total construction jobs are up 31,000 to 7.533 million on a seasonally adjusted basis.

This is good, right?

Jobs growth is good.

Right?

What about unemployment? Diving further we see unemployment rose from 4% to 4.7%.

This is very typical between October and November as colder weather sets in.

The amount of the rise in unemployment, though, is what we're looking at - and may be cause for concern.

On a percentage basis, this is the fourth largest increase in unemployment between October and November in 22 years.

In the three years with greater increases (2001, 2006, 2008), unemployment didn't go back to the October levels for the entire next year.

So what happened after this October to November increase in each of those three years?

• In 2001 unemployment took 34 months to return to its October '01 level. Construction spending did not follow this downward trend and it continued to rise for the ensuing 53 months, peaking in February 2006.
• In 2006 it took 116 months for unemployment to return to its October '06 level. Construction spending did not follow this downward trend also in 2006. Spending continued to rise from November 2006 levels peaking seven months later in June 2007.
• In 2008 it took 55 months for unemployment to return to its October '08 level. In this case construction spending was in freefall and it took 72 months for spending to return to November '08 levels.

If these trends hold, then unemployment will actually rise from here through the following year(s) and spending may or may not decline.

Time to get concerned? We don't think so. Not yet, anyway.

The reason is that we're in new territory with employment levels. There just aren't enough people right now to fill jobs. 

We track Total Available Construction Labor (TACL) which compares unemployed construction workers against open jobs to see if there enough workers to fill jobs.

In November 2001 TACL was 427,000, in November 2006 it was 384,000, and in November 2008 it was 939,000.

The latest TACL number we have is from September 2021 and it's only 35,000.

Bottom line is companies have work.

They're looking for people.

And for the foreseeable future as people come available they're going to get scooped up by companies with the work.

We know that backlogs are strong and indicate strong growth ahead.

Where's the labor market going?

In short, we still think we're heading for a period of tightening labor.

If we think of the labor market forecast like a scale. We have several "weights" on the labor-is-getting-tighter side of the scale. And now we have our first item on the labor-is-loosening side of the scale.

Something to watch over the coming months. If unemployment does rise (as history suggests it will) we should take note. 

Trouble could be n the horizon.