Episode Transcript
[00:00.00] Welcome to Talk the Tauc from the Association of Union Constructors. In this podcast, we explore the latest labor trends, industry insights, and important issues in the world of construction. Join us for conversations with industry leaders, subject matter experts, and innovative visionaries as we discuss how we are building the world of tomorrow. Talk the Tauc presented by the Association of Union Constructors.
[00:26.96] Kirk: Today we're joined by Ken Simonson, Chief Economist of the Associated General Contractor of America. Ken is one of the most widely cited voices in construction economics, helping contractors make sense of labor markets, costs, regional trends, and why the industry feels more constrained than ever, even with strong demand and funding. We ask Ken to join us to help unpack what's actually happening beneath the headlines. Ken, thank you so much for being here.
[00:49.92] Ken: Glad to be with you.
[00:50.92] Kirk: Hey, so I always like to start off with kind of a ridiculous question to keep things fun and light, so I'm curious, what is the last song you had stuck in your head?
[00:57.82] Ken: This will really date me. I remember Dominique Canique Canique by The Singing Nun from 1964.
[01:07.80] Kirk: That might be one of my favorite answers to that question. Okay, Dominique Canique Canique from The Singing Nun 1964, you said? That's a first for that one. I've gotten a lot of fun songs, but that's a first. Let's level set from an economist's perspective. How would you describe the current construction market environment right now?
[01:24.52] Ken: It's mixed, but generally pretty depressed. There are a couple of strong areas, certainly data centers, that is an incredible boom that looks like it's just going to keep on going, and somewhat related to it, demand for all kinds of power construction, other than wind, but very much for solar, even for geothermal, for new types of nuclear, for reviving older nuclear and even coal-fired power plants, and then very much for battery storage and utilities, so those are all strong categories. But for nearly everything else, contractors are saying, well, owners are hesitant to go ahead with projects or demand has actually shrunk or been very weak.
[02:09.36] Kirk: Why would that be the case? I mean, why is it so hard?
[02:11.36] Ken: There are a number of reasons, certainly the economy has continued to grow, but it's been kind of bifurcated, quite a difference between people in the upper end of the wealth or income spectrum have been spending a lot, spending on travel, on experiences, and so forth.
[02:31.92] People in the lower and middle end, they say it's hard to make ends meet, high cost of housing, high cost of food, and so they've been dialing back on some of their spending, and so that's a negative there. But also, the hiring picture has been very sluggish that we're in a so-called low-hire,
[02:53.24] low-fire environment, both for construction and the broader economy, so it's gotten harder for people to get jobs or to move up from one job to another, and that also makes them sick.
[03:07.24] All of these things mean that owners who might otherwise be building factories, stores, warehouses, hotels, that they're hesitant to go ahead. And then on top of that, you have some major policy-related uncertainty about tariffs, about immigration policy, about interest rates. All of these things, again, are causing hesitancy or actual cancellation or decline, scaling back of projects.
[03:36.96] Kirk: So as you just mentioned, there's lots of factors going on.
[03:39.26] There's lots of everything from tariffs to changes in the economy, political environments, as well as other things. Is there any kind of end in sight you see? Obviously, we have the data centers and all the power generation. Is there any other kind of hopeful glimmers on the horizon?
[03:54.20] Ken: The contract or members of associated general contractors do seem to be a little more upbeat than I am. AGC, as you know, is the leading national trade association. We have over 28,000 member companies that belong through a network of 87 chapters, local and state, that span the country. And collectively, our members do every kind of construction other than single family.
[04:17.02] So each fall, we ask them, what is your outlook for 17 different segments of construction? I mentioned the two strongest in terms of the percentage of respondents who think the market will grow minus the percent who think it will decline. We call this the net reading and came in very strong for data centers, quite positive for power construction.
[04:42.64] And then for 10 other categories, some degree of optimism, but less so than a year ago. And for five categories, the net sentiment was actually negative. Last year, we had only two net negative readings. Those were for retail and office construction. Those sentiments became even more negative this year. But on top of that, on balance, respondents were negative about K through 12 schools, about higher ed, and about lodging.
[05:14.72] Kirk: That actually makes a lot of sense, actually. Just when you think about the categories they're talking about, they're being hopeful for versus what they're not. I can just, from my perspective, look at that and say, yeah, I can absolutely see why those would be less inclined to grow at the moment with everything going on. What are you seeing as far as labor costs and trends across regions? I mean, you said how many chapters are there within the AGC?
[05:37.36] Ken: We have 87 chapters. Some cover the entire state and the entire industry of them, single-family homes. Others cover highway and heavy ore building. And then within some of the states, we have local building-focused chapters. We really get quite a mix of both the union contractors, open shop contractors. Some chapters are all one way, all the others, some are a mix. But when we have analyzed the data this year, we found that there was really pretty broad-based sentiment on all of these factors.
[06:13.16] Whether you're a union firm or an open shop firm, your optimism is less than it was
[06:19.36] a year ago, and covers fewer categories than a year ago.
[06:24.60] Kirk: What are we seeing across those boards? What is the data showing us as far as labor costs across regions?
[06:30.32] Ken: I look at four different sources for labor costs. Most timely is from the National Employment Report that the Bureau of Labor Statistics puts out each month. And they have a reading called "Average Hourly Earnings for Production and Non-Supervisory Employees."
[06:48.60] It's a long mouthful to talk about average wages for craft workers and office workers who aren't supervisors. And that went up 4.3 percent from December of 2024 to last month, compared to 3.8 percent for the broader private sector. Construction wages going up somewhat faster than the broader private sector. There's another measure from the Bureau of Labor Statistics called the Employment Cost Index.
[07:18.12] And this also measures wages, in this case, for all employees, again, a little over four percent for construction, a little less than four percent for the broader private sector. For union employees, AGC is one of the dozen associations that supports the Construction and Labor Research Council. And they reported that the first year settlements signed in January through September of 2025 came in at 4.7 percent.
[07:46.08] That was the same as in 2024. But of course, it's a huge jump from the contracts that had expired that had been signed in 2021 or 2022 with two to three percent increases or even a flat first year. So once again, looking at wages going up four to maybe even five percent. Finally, for salaried staff and executives, a firm called PAS has done surveys for more over than 40 years and found that companies were expecting to pay their staff about a four percent increase.
[08:21.48] And they think that would be the correct figure for 2025. Whatever measure you look at, it looks like the industry is headed for at least a four percent increase and somewhat more than the broader private sector.
[08:35.52] Kirk: We actually we also support CLRC and have we're going to be actually having Kerry Peters going to be on the podcast in a few weeks as his next settlement report come out. We asked him to come on and give us a full breakdown. I'm excited to kind of hear how that goes. But no, that's awesome for you to bring that up.
[08:50.84] It's a great opportunity to say, yeah, that his settlements reports are always really amazing. And his next set is he's going to come on and talk about. But I've heard a lot of debate about this amongst various people. Is there a labor shortage overall in the industry?
[09:04.40] Ken: Shortage is a term that obviously everybody uses, but economists tend to shy away from because they think the market will set an equilibrium at some price. I guess the best way I can answer that right now in terms of what the data are indicating is from another source from the Bureau of Labor Statistics called the Job Openings and Labor Turnover Survey, which is the fun acronym of JOLTS. And this specifically, it comes out about a month after the national employment report. It has several series that I think are quite revealing.
[09:39.84] First, the number of people hired in a month as a percent of the existing workforce. For November, that's the latest figure we have. For November of 2025, that hire rate was 4.1% of the people already on the workforce in November of 2025. That matched the November 2024 rate.
[10:04.08] But if you go back across the history of that series, it's the lowest in that history. That says contractors are not hiring right now at a very strong rate. Another measure that they have in this report is the job openings rate. It's a snapshot of what happened on the last business day of the month. And that rate was also very low, not historically the lowest, but one of the lowest rates in the past decade.
[10:33.04] Contractors aren't even advertising jobs at the rate that they typically have been doing, which together these things would suggest, no, there isn't much of a labor shortage. Another part of the JOLTS report is quits. This has also been at an extremely low rate.
[10:50.84] And then finally, a layoff rate is also at the lowest in the history of that series. Putting it all together, we get that low hire, low fire kind of message with respect to construction. Turning to the AGC Outlook survey, we found that the firms still expect to increase their headcount. 63% of firms said they expect to increase their own headcount in 2026, in spite of their being less optimistic about the market overall.
[11:22.68] That was down, though, from 69% of the firms in 2025 thought they would expand their headcount. And we actually had 15% of firms that they thought they would be shrinking their headcount. Once again, not a strong sign of optimism. Now firms did continue to say, yes, it will be as hard or harder to fill jobs.
[11:44.28] But the fact is, the industry was filling jobs at a faster rate than the overall economy in 2025. Not a strong increase in employment, but a little bit better than the broader sector. When you talk about shortage, it really comes down to what type of work or what type of project and what location. And you're always going to find firms that say, oh, we can't find anybody to do that job. But you have to say that it's less of a problem now than it was, say, three years ago when so much of the market was growing strongly, including the residential side.
[12:21.40] Kirk: Economically speaking, is that a good sign or a bad sign that we are not advertising that many jobs? Is that saying that there's less work to be done and therefore there isn't -- is there a work shortage and not a labor shortage? Or what can someone derive from that data?
[12:34.62] Ken: The fact that contractors aren't hiring much, they aren't advertising much certainly points to a slowdown, and the fact that the quits rate is so low suggests also that workers see little opportunity to jump to another firm either in construction or elsewhere in the economy. So those are negative signs.
[12:55.68] However, contractors are also hanging on to the workers they have. The last time we saw a huge drop-off in the hires and job openings rates was back in the Great Financial Crisis in 2008, 2009 following the collapse of the housing market. At that time, layoffs just spiked like crazy.
[13:18.10] The fact that layoffs are staying close to a record low rate says contractors still have some optimism that even though they're not hiring right now, they're not advertising open positions, they know how hard it would be to replace workers later, and they have some optimism that the market will get better later on. I guess I would say, yes, it's not a good sign that there are so few openings now. But it's not a sign that we're heading into a deep recession.
[13:49.32] Kirk: Now we talked about differences in industry, you know, power being big and everything else being a little less. Is there anything really to be said about region? Is the Pacific Northwest doing better than the Southeast? Are there regional differences in these trends?
[14:04.52] Ken: One thing that we look at every month is the state construction employment. And the Bureau of Labor Statistics updates these figures typically a couple of weeks after the national employment numbers. The latest figures we have are for November. They show the 32 states did add jobs from November of 2024 to last November.
[14:27.32] That was down from year before. Most of 2024, it was anywhere from 35 to 45 states. And I would say that the strongest employment gains have tended to be in the middle of the country. And there's a definite weakness on the coasts in the Northeast, the whole Pacific coast. And now some states in the Southeast, which had formerly been doing very well.
[14:52.36] You can break it down further, BLS puts out figures on 360 metro areas and divisions of large metro areas and AGC ranks all of them by change in construction employment each month. Just over half of the metros had an increase in construction employment, again, from November of 2024 to last November. Again, like the other things we've talked about, it's very much a mixed picture. Yes, there's some positivity, but not as much as we had seen a year before.
[15:24.36] And you can only generalize to a limited degree as to where it's happening. There's certainly pockets within states that are doing very well. And then there are other states that are lagging, New York State, California. Those have generally had some of the worst growth prospects. Washington State has done very badly lately also.
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[16:04.76] Kirk: What would make one region do worse than other? Just availability of work or the work in that region? What would cause that difference from market to market?
[16:12.44] Ken: It depends in part on what kinds of projects are in demand, but also policies can make a difference. California, of course, has a reputation as being a very high-cost state, a state that's difficult to do business in.
[16:27.84] It's a state that used to grow faster than the U.S. as a whole, but it had a couple of years of population loss, particularly during the pandemic. The cost of housing is so high and a lot of regulatory business tax costs have been causing businesses to move away from California. That has kind of depressed the private market.
[16:51.00] They're still doing a lot of infrastructure there, partly in connection with the 2028 Olympics coming to Los Angeles, but also a lot of transportation construction, a lot of construction related to resiliency of the electrical grid there. In terms of what the strongest demand is, it goes back to demand for data centers.
[17:15.48] And that's one that, of course, historically was very concentrated in a narrow spot around Northern Virginia, Loudoun County, Virginia. But that area has gotten so filled up that the local power company Dominion Energy says we can't hook people up for years. The residents are saying no more. Data centers are showing up in more and more parts of the country. They're getting bigger and bigger.
[17:42.16] Suddenly some of the biggest data centers are being built in Mississippi and Louisiana and some of the Western states where there's a lot more land, where power may be available more readily.
[17:55.36] Kirk: Kind of shifting slightly, you mentioned it earlier too, more general economic and government. How is inflation and the interest rates and things with tariffs? How are those affecting projects at projects, starts and timelines?
[18:10.12] Ken: The interest rates have been certainly a barrier toward getting private investment, 30-year fixed mortgage rate that most homebuyers turn to has remained stuck above 6% for a couple of years now. And that's priced a lot of people out of the market, whether they're first-time homebuyers or they're people are sitting on a suite, 3% mortgage and don't want to give it up in order to move, even though they might prefer to be living in a different location or a different kind of housing.
[18:42.78] But those high sticky long-term rates affect more than mortgages. State and local governments that borrow the municipal bond market or universities and hospitals and airports with private activity bonds means they're paying more in interest and less available for construction. And then private developers, they're very sensitive to borrowing costs.
[19:09.76] Banks have kept their lending rates high and also they're not as interested in lending for commercial real estate compared to some other things. And as a result, all of that has contributed to a more sluggish construction market than we'd see otherwise. Tariffs are yet another reason that costs for construction have gone up and also another reason for hesitancy on the part of owners.
[19:34.40] It's not just that the cost of the construction has gotten higher, construction materials, but manufacturers may find the cost of the materials they use for making something or higher, their competitive position versus companies that are producing without the same tariff for obstacles that they've lost position. They don't need a new or expanded factory.
[20:01.74] And then they may be facing retaliation or just the uncertainty about what the tariff rates are ultimately going to be. I know the president has been touting projects that are coming to the US, but in fact, many of those announcements don't have a date connected to them or a location. And I think a lot of manufacturers saying, "Wait a minute, the sky will be gone in three years and we don't know what the tariff rate will be then. Will we have any protection compared to foreign competitors then?"
[20:34.56] I don't think manufacturing is going to grow in the next year, even if tariff rates do seem to settle down. And at the moment, we're still seeing threats of new tariffs being imposed. We're still waiting for the Supreme Court to tell us if some of the tariffs that were imposed in 2025 have to be refunded. So just a huge amount of uncertainty on that side.
[20:58.68] Kirk: Is there anything about capital flow that contractors you've seen typically misunderstand or don't attribute too much or too little to as far as planning these projects?
[21:08.40] Ken: Contractors are kind of at the mercy of owners. As I mentioned, our survey a year ago has a lot more optimism, and contractors at the time said that they had strong order books, they thought 2025 would be a great year. And then as the tariffs that came out and the immigration enforcement made it more difficult to get projects completed, they found that there was not nearly as strong a market as they were expecting.
[21:39.00] So the situation about interest rates and about tariffs, these are things that contractors and I don't have a lot of visibility into. It is unfortunately easy to be taken by surprise. On the positive side, it's just amazing to me how every month we seem to get announcements of still bigger data center projects and endless appetite for new power projects.
[22:08.00] Kirk: No, I've noticed that as well. We see them all the time, these incredible bills with incredible price tags, the Homer City rehab and a few others that are just these incredible data centers that are being built that I'm amazed to see what that's going to do to both the economy as well as just the general outlook of those communities that are having these data centers built in them.
[22:29.84] Ken: Yeah. Well, one thing I mentioned in passing that may be quite a wild card this year is what's happening with immigration enforcement. The president has been very strong, certainly his team has been very aggressive about trying to limit immigration and to deport or get people to self-deport.
[22:54.32] And construction is much more dependent on foreign born workers than the rest of the economy. About 34% of the construction trades are foreign born. Not to say they're illegal, the Census Bureau doesn't ask about immigration status, just were you born in the US or elsewhere. That's about double the 18% in the broader workforce. And early in the year, we did hear about some raids on construction sites.
[23:24.12] But after the big raid on the Hyundai manufacturing plant in Georgia in September, the focus seems to have shifted. So there's all this turmoil in communities, most recently in Minneapolis, but a number of other cities also. Not so much going after job sites. On the other hand, the One Big Beautiful Bill Act that the president signed in July includes an incredible increase in staffing resources, money for immigration enforcement.
[23:56.72] And I think it's likely that later this year, we will start to see some of those agents showing up at construction sites again, and it can be very disruptive. In our survey, we asked firms if they had been affected directly or indirectly by immigration enforcement, about a third of the firm said yes. Only 6% had been visited at a job site or off site like their office. 11% said that workers had failed to show or had left a job site based on actual or rumored enforcement actions.
[24:30.24] And 24%, almost a quarter of the firms said that subcontractors had been affected. There is some stuff going on there. But I think later this year, it could be much more intense.
[24:42.72] Kirk: That's good to know. Obviously, I definitely knew about there had been different raids, and we'd heard about different construction workers and different things in that realm. But those numbers are all a lot higher than I thought you were going to say.
[24:57.08] At the beginning of the call, you had talked about how many contractors seem to be more optimistic than you. Are there economic indicators that you think that contractors tend to underreact or overreact to? Are there things that people ignore that they shouldn't or the other way around?
[25:14.68] Ken: I'll answer it in a slightly different way. I hear a lot from investment analysts and other commentators, pay a lot of attention to the Architecture Billings Index, or the ABI. This comes out typically in the third week of the month. It's a survey the American Institute of Architects has done for over 30 years of their member firms. And it's a simple index.
[25:39.48] It measures the percent of firms that said billings were higher, minus the percent who said they were lower in the month before. And it's centered on a reading of 50. So anytime that reading comes in below 50, it suggests that architects don't see as much work coming in as they did. And the American Institute of Architects asserts that this indicates what's going to happen with construction nine to 12 months out. I think the connection is very loose there that architects, yes, they bill in advance of they bill for design. So it's in advance of construction.
[26:18.32] But some of what they bill for is oversight of projects or rework of projects, answering questions when the design hasn't been complete or hasn't been accurate. It isn't a clean billing today, 12 months out construction happening. More important, though, architects aren't involved in huge parts of construction. There's no need for architecture for most highway work or water and sewer work. Data centers may be a little bit, but nothing compared to the many billions of dollars spent on a project, not on transmission lines or most other aspects of power construction.
[26:57.48] So there are huge parts of construction for which the ABI is a misleading indicator, not a leading indicator. And then even within the areas, yeah, you might say there is a connection. It's somewhat tenuous. I think there's a little too much faith put in that as a suggestion of where construction is headed. But having said that, the ABI has been in continuous decline for almost continuous decline for close to three years.
[27:26.88] And that I think overstates the pessimism that there are certainly categories within even these declining segments that are positive. For instance, warehouse construction. We had this huge boom after the pandemic and the supply chain bottlenecks. Now you have big vacancy rates among the huge warehouses built in the Inland Empire or along the New Jersey turnpike.
[27:52.08] But there are still niches like last mile delivery within metro areas or cold storage. Similarly health care. One of the really strong areas, and this popped up during the pandemic, was those hop-up clinics to test or those went away, but the notion that you could get health care delivered outside of a hospital setting has led to a continuous growth of what the Census Bureau calls specialized care facilities.
[28:25.84] Anything from one of those roadside urgent care facilities to minute clinics inside drug stores or big box stores to longer term care facilities, even hospices.
[28:39.24] I do think that within the broad health care category, there are niches that are going to be very strong. Hospitals have always been the dominant part of health care, and I don't see that growth being as strong. It really varies as you peel off the layers of the onion, which is going to do well or not.
[28:59.12] Kirk: From your vantage point, you talk about the, I really like the term misleading indicator. I think it's just kind of a very well-descriptive term, but over the next 12 to 24 months, as we are going over, we have three more years of this current political climate before we don't know what will change, but something will change one way or the other. Over the next 12, 24, 36 months, what leading indicators, what should contractors be watching? What assumptions should they be checking?
[29:24.60] Ken: Boy, that's when I have to take a few seconds to think, what would I be looking for? I think one of the things that certainly will be important in 2025, and my crystal ball hazes over well before the end of the presidential term, but certainly for highway contractors and others, transit and some other kinds of infrastructure, we want to see what Congress is going to do this fall as the current highway authorization bill expires on September 30th.
[29:58.48] Year after year, we've seen when those expiration dates come along, they kick the can down the road in the trite phrase, meaning it takes several months, even a couple of years before we get a new authorization bill. That's the most likely outcome this year with Congress so closely divided, particularly the House.
[30:17.72] On the other hand, I think there is a desire to show that they have gotten something done and that the outlook for highway construction will improve after 2026. I think this year it will be a kind of sluggish, perhaps small improvement, but not a lot. But in terms of looking for economic indicators, I think we just have so much volatility in the way this administration has been putting forth proposals or policy changes, that everybody is sitting tight wondering what's going to happen next.
[30:54.76] And I don't see a way of making sure that any area of construction will pick up until we get more certainty about what that president plans to do with different parts of the market. For instance, higher education is an area that was hit really hard in 2025 by cancellation of projects, cancellation, upper denial of visas, and so forth.
[31:21.08] And yet, more recently, some of the courts have said the cancellation of contracts and of grants was not legal. Some more of that money may start flowing back into higher ed. And by 2027, perhaps we'll see a pickup in that category. It's just an era where we're going to have to roll with the punches and see what comes up.
[31:43.12] Kirk: With the AGC, the National Association, and 87 chapters covering every type of construction other than, you said, single family, is there one thing that you see which construction leaders would stop thinking or doing or saying? Is there one thing, if you had a magic wand, if your crystal ball started working and you could say, "This is the thing you need to focus more on or stop focusing on or do differently," what would that one piece of advice be?
[32:07.84] Ken: I think our membership is too diverse, too savvy overall for me to pretend to know better than they do. Most of our members stick to a limited geographic area, limited number of project types. And I can't fault them for that. I'm certainly somebody who tries to stay in my own lane. I don't think that I have the expertise, I know I don't have the expertise to tell a construction firm how to do their business.
[32:36.08] So I think each firm is going to have to assess how good is that local market. If it's not good, should they be switching to a broader geographic area? Should they be looking for new kinds of projects to try to get into, but other firms just ride out the storm?
[32:53.88] Kirk: Well, Ken, thank you so much. I mean, this is the kind of context that is incredibly valuable for our audience. We appreciate you helping break down these complex market forces in a way that leaders can actually use. And thank you to everyone who's listening. We'll be back soon with another episode of Talk the Tauc.
