Construction Sector Offers Silver Lining in Disappointing Jobs Report

Even as overall employment gains cool, the construction sector continues to heat up.

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The economy added just 88,000 jobs in March, a disappointing reversal given solid gains in January and February, and well below the 193,000 new jobs economists predicted for the month.

But there is one sector that's heating up, even as other industries suffer the side effects of sequestration and squabbles in Washington: residential construction.

[PHOTOS: Home Construction on the Rise]

The homebuilding industry, beaten down during the housing bust, is benefiting from the overall tight inventory of homes for sale and the rush of would-be homebuyers to take advantage of record-low mortgage rates. Housing starts—around 917,000 in February—are still much lower than the 1.5 million economists say is closer to normal, but still almost 30 percent above construction levels seen this time last year, fueling job creation in the industry.

According to the Bureau of Labor Statistics, residential construction jobs increased almost 4 percent year over year, significantly faster job growth than the overall employment increase of about 1.4 percent.

The trend reflects "that housing is now a critical part of the economic recovery," Trulia chief Economist Jed Kolko, wrote in a post Friday.

But according to Kolko, construction jobs aren't keeping up with the level of activity when compared to gains in the dollar value of new residential construction and the number of new units being built. While construction employment has risen just 7 percent since it bottomed in January 2011, new housing units have grown by almost 40 percent. The dollar value of residential construction has skyrocketed 50 percent, according to Trulia.

[READ: Construction Firms Say Labor Is Hard to Come By]

Why has the construction industry seemingly been so slow to ramp up even as demand for new residential units has increased dramatically? According to Kolko, it has to do with "labor hoarding." During a downturn, homebuilding firms might nix projects but hold onto employees so as not to have to re-hire and re-train them when market conditions recover. Because the number of jobs declined less than construction activity during the bust, job gains are more muted as construction activity has picked up again, Kolko said.

But there are regions that are bucking the trend of overall gains in construction employment. In especially tight markets including Washington, D.C., San Francisco and Denver, construction activity is outpacing the supply of labor. And the outlook isn't too rosy.

"For builders who are reporting labor shortages today, that headache is likely to get worse, not better, as the recovery continues," Kolko said.

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