Construction Industry: A Close Look at the December JOLTS Report

The Job Openings and Labor Turnover Survey (JOLTS) update for December has provided key insights into the state of the U.S. labor market, with significant implications for various sectors, including construction. As we transition through 2024 and into the new year, the labor market shows signs of cooling, yet remains relatively steady, with nuanced trends that could influence economic policy and hiring strategies.

Job Openings Cool Down

By the end of December, U.S. job openings had cooled to 7.6 million, marking a reduction from previous highs. While this appears to be a sharp drop, it’s important to note that on a three-month moving average basis, job openings have stayed within a range of 7.6 to 8 million since June 2024. This suggests that the labor market has been stable overall, despite large monthly fluctuations. The trend reflects a gradual cooling of job demand throughout the year, indicating that the labor market is slowing but not dramatically contracting.

The stability in the job openings data points to an ongoing shift towards a more balanced labor market. The Federal Reserve closely tracks these metrics, as they provide valuable signals on inflationary pressures and overall economic health. When job openings outpace the number of unemployed job seekers, it can drive up wages and lead to inflation, but the balance in this ratio—hovering at 1.1 for six consecutive months—suggests that labor demand and supply are becoming more aligned.

The Construction Sector: A Key Indicator

The construction industry, in particular, stands out in the December JOLTS report. Job openings within this sector fell to their lowest level since April 2020, a worrying sign for the industry. Despite construction being a cornerstone of the U.S. economy, the quits rate, which measures how many employees voluntarily leave their jobs, dropped significantly in this sector. This means that fewer construction workers are leaving their positions of their own accord, which may indicate an uncertainty or lack of opportunities within the sector.

One of the key factors contributing to this slowdown is the construction industry's dependence on immigrant labor. With the current administration's ongoing curbs to immigration, there has been a tightening of the labor pool. The slowdown in construction job openings and the plummeting quits rate can be partially attributed to these policies, as many firms in the industry are facing difficulties in finding and retaining skilled labor. At the same time, layoffs in construction remained flat, indicating that while the market is not in crisis, companies are nonetheless cautious and adjusting to the new labor dynamics. The hoarding of labor in the face of immigration restrictions points to an industry trying to hold on to its existing workforce, even if it is unable to grow as quickly as before.

Broader Labor Market Trends

Beyond the construction sector, the overall labor market trends of the final months of 2024 reflected cooling but stability. Job openings remained steady, but hiring activity remained low, with employers seemingly reluctant to expand their workforce aggressively. In addition, layoffs and quits stayed at low levels, suggesting that workers were not leaving their jobs in large numbers, nor were companies cutting jobs at a fast pace.

This low turnover in both quits and layoffs implies that the labor market is stabilizing, with fewer people seeking new employment opportunities and a more stable workforce in place. However, for those who are still looking for work, the labor market appears more challenging. Competition for open roles may be high, and companies are exercising greater caution in their hiring practices, particularly in industries like construction, where labor shortages persist.

Risks to Inflation and Economic Outlook

One of the most pressing issues highlighted by the December JOLTS data is the potential risks to inflation. Despite the cooling of the labor market, there are several factors that may continue to push inflation higher in the coming months.

Firstly, the uncertainty surrounding tariff policies could disrupt global supply chains, which may continue to push costs higher. The administration's immigration policies also add to this uncertainty, particularly in sectors like construction, where labor shortages could lead to higher wages and, subsequently, higher costs for construction projects and housing.

Moreover, consumer inflation expectations have been steadily rising, which could be an early warning sign of inflationary pressures building in the economy. As prices rise and wages stagnate, consumers may begin to demand higher wages, which could lead to a wage-price spiral—further compounding inflation.

In response to these trends, the Federal Reserve has indicated that it will wait for further data before deciding on its next move regarding interest rates. While the central bank has already implemented aggressive rate hikes in previous months, it may be difficult to reduce rates significantly in 2025 if inflation remains persistent and labor market conditions do not improve substantially.

Conclusion

The December JOLTS update reveals a labor market that is cooling but remains relatively stable. Job openings are steady but have fallen, particularly in the construction industry, where immigration curbs and workforce shortages are taking their toll. While layoffs and quits remain low, the sector’s reliance on immigrant labor is a critical challenge as immigration policies tighten.

As the Federal Reserve continues to assess these dynamics, the risks to inflation remain elevated due to uncertainties in tariff and immigration policies, as well as rising consumer inflation expectations. The balance of job openings to unemployed seekers may remain steady, but the construction industry faces a particularly difficult road ahead as it navigates labor shortages and policy changes in the year to come.