The scars left on the construction sector following the 2008 financial crisis were severe, and the recovery observed over the past decade has been disappointing. With the housing sector at the center of the downturn and bank lending standards remaining relatively tight during the expansion, construction sector activity has only gradually come back online, rather than staging the v-shaped recovery that some expected. While 2019 saw a healthy acceleration in real estate and construction activity as the Federal Reserve (Fed) cut rates and financing costs became more favorable, this dynamic was short-circuited in March 2020 as the rapid spread of COVID-19 led to a global economic lockdown.

That said, it is important to recognize the progress made, and attempt to discern what might mean as the economy recovers from the COVID-induced lockdown. As of March, there were 7.7 million construction jobs in the United States, just 121,000 fewer than existed at the peak in April 2006. However, the devil is always in the details, and while the U.S. economy has nearly regained all of the construction jobs lost during the financial crisis, construction jobs now only account for 5% of nonfarm payrolls, down from 5.7% in 2006. Furthermore, if construction accounted for the same share of nonfarm payrolls as was the case in 2006, it would have led to the creation of an additional 1 million jobs. Clearly, there is room for growth. 

While the employment angle of this is a bit downbeat, we see reasons to be optimistic about the future. First, prior to the recent downturn, construction spending had been gradually recovering; the process had been slow, but construction spending as a share of GDP was only -2.5%-pts below the peak of 8.9% observed during the housing bubble, and only -1.5%-pts below the average seen from 2000-2003. Furthermore, construction spending has grown at an average rate of 6.7% since 2012, relative to an average page of 7% from 2000-2006, suggesting that while the industry itself may not have been quite as boomy, the sector has not seen a diminished ability to generate output.

Finally, it is important to recognize that there are emerging demographic tailwinds. The damage done to the consumer, particularly young consumers, during the financial crisis was significant. As these individuals have gradually gotten back on their feet financially, household formation has picked up; as these households grow, these families will need new places to live. Housing remains more affordable than it has been in decades, suggesting that as the current economic downturn runs its course, there may be room for housing to rebound in a significant way.

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