Construction Trend Tuesday (#20)

Wage growth (and labor demand) slows

Construction Trend Tuesday covers one (hopefully) interesting industry trend in a quick, two minute read. You can access the archive of CTT posts here.

Construction wage growth accelerated to a blistering pace in 2022 and 2023 (blame labor shortages) but has since decelerated to a late-2018 pace.

Despite this slowdown, wages are expanding at a roughly 3.5% annual pace. That’s faster than both inflation and earnings growth across all industries.

Will this deceleration continue during the second half of 2025? It’s possible. Indeed, facially, it seems likely. Demand for construction services has slumped in recent months, especially in the residential segment where spending is on pace to contract about 10% for the year.

Industrywide job openings have plunged as a result. All else equal, diminished demand for workers translates into slower wage growth.

But all else isn’t equal. Immigration policy stands to reduce labor supply enough that contractor competition for workers could rebound, pushing wages higher faster.

There is a lot unknown here. While the data clearly indicate that many construction workers are foreign born, they are not so clear regarding how many are undocumented. The extent to which undocumented workers are neatly reflected in various labor market data is also unclear.

It’s also possible that construction activity will rebound as the shock of trade policy volatility wears off. This could certainly happen on the nonresidential side of the industry—more than 6 out of 10 ABC members expect their sales to rise over the next six months—though residential activity is unlikely to bounce back, especially with homebuilder sentiment near historic lows and mortgage rates remaining stubbornly elevated.

What’s Next

This is a slower week for economic data but we still get a handful of updates, including on home sales and durable goods orders. We’ll cover that and a whole lot more in Week in Review, our every-Friday post that covers all the economic news and data in a breezy, five minute read.

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