The construction unemployment rate decreased to 3.5% in July. Unemployment across all industries dropped from 3.6% in June to 3.5% last month.

“Today’s employment report was expected to show an economy not yet in recession but at least headed in that direction,” said Anirban Basu, chief economist, ABC. “Shockingly, that did not come to pass, as U.S. employers added 528,000 jobs in July, more than twice the consensus forecast of 250,000, and the unemployment rate across all industries fell to 3.5%, tied for the lowest rate since the late 1960s.

“Yes, the construction industry also added a healthy number of jobs in July, but the impact of macroeconomic deterioration is already apparent in other construction data,” continued Basu. “To date, the residential segment has felt the brunt of rising borrowing costs, with mortgage applications recently declining to multidecade lows. But, ongoing weakness in certain commercial real estate segments, sky-high materials prices, and shortages of skilled construction workers have forestalled a growing number of projects by suppressing demand at a time when the cost of delivering construction services remains elevated. The industry’s labor supply remains severely constrained; the construction unemployment rate fell to 3.5% in July, the fifth lowest rate in the 22-plus years for which the Bureau of Labor Statistics has data.

“While backlog remains elevated from a year ago, according to ABC’s Construction Backlog Indicator, this may have as much to do with the fact that projects are taking longer to complete than with underlying economic strength,” concluded Basu. “The expectation is that backlog will begin to fade for many contractors as the economy becomes less supportive. At the heart of the issue is the Federal Reserve, which will continue to raise interest rates as long as the labor market retains this level of momentum.”

For more information, visit www.abc.org/economics.