The August jobs report delivered an unexpectedly strong headline for the U.S. economy, but for the construction industry, diesel prices may be just as important heading into September.
U.S. employers added 162,000 jobs in August, according to the Bureau of Labor Statistics (BLS), well above economists’ expectations after a sluggish summer for hiring. The unemployment rate held at 4.1%, while previous estimates for June and July were revised upward by a combined 55,000 jobs. July, initially reported as a loss of 23,000 jobs, is now estimated to have produced a gain of 21,000.
Construction continued to show relative resilience. The industry added 22,000 jobs in August, although BLS characterized overall employment as little changed. Nonresidential specialty trade contractors added another 8,000 positions, continuing a trend that has averaged about 6,000 new jobs per month over the past year.
Those numbers offer a snapshot of an industry still adding workers as the broader labor market settles into what economists have described as a “slow hire, slow fire” environment. Across the economy, hiring has generally slowed without producing widespread layoffs, and the 162,000-job gain was considerably stronger than recent indicators had suggested.
For construction, however, the August employment numbers arrive alongside a developing cost challenge that will not appear in the jobs report.
Diesel Reaches Record Territory
The national average price of diesel reached a record $5.85 per gallon Sept. 4 as disruptions associated with the conflict in Iran continued to constrain global energy supplies. The price is more than 55% higher than it was at the beginning of the conflict, according to The New York Times.
For construction, that increase can raise equipment, delivery and material costs.
Diesel powers much of the heavy equipment used on construction sites and is central to the freight and delivery networks that move materials and equipment between manufacturers, suppliers and projects. Higher fuel prices can therefore reach a project through several channels at once, including equipment operating costs, trucking and delivery charges, material costs and subcontractor pricing.
Unlike the August employment figures, which largely reflect conditions before the latest fuel-price increase, the diesel spike represents a new test for the industry heading into the fall.
It also arrives as inflation remains elevated. Consumer prices were 3.4% higher in July than a year earlier, while average hourly earnings increased 3.1% over the year through August. Renewed energy-price pressure could further complicate the inflation outlook, particularly because transportation costs can move through supply chains and ultimately into the prices businesses and consumers pay.
What Design-Build Teams Can Do with Earlier Visibility
No project delivery method can make diesel cheaper or eliminate economic uncertainty. Design-build can, however, give Owners, designers and builders opportunities to identify and respond to changing conditions earlier in project development.
DBIA’s Design-Build Done Right® Best Practices emphasize integrating design and construction expertise throughout project delivery. DBIA identifies early knowledge of firm costs and the allocation of risk to the parties best able to manage it as key benefits of design-build. When market conditions change quickly, early identification of labor, equipment, material and logistics costs gives teams more time to evaluate those risks before they affect the project budget and schedule.
The Federal Highway Administration (FHWA) explains that early contractor involvement gives project teams access to contractors’ knowledge of current and projected market conditions, while allowing contractors and suppliers to evaluate design and construction alternatives before decisions are finalized. Although this is broader FHWA guidance on early contractor involvement and alternative project delivery rather than a design-build-specific statement, it supports the same underlying principle of bringing construction expertise into the process early to inform risk decisions and increase cost certainty.
For design-build teams facing volatile fuel costs, earlier visibility can be particularly valuable because the team can identify where that exposure sits within a project and assess its potential effects before design and planning decisions are finalized. That creates an opportunity to address the risk before its full impact is embedded in budgets and schedules.
The August jobs report suggests construction entered the end of summer with employment holding up relatively well. The next question is how that capacity performs under a new round of cost pressure.
For design-build teams, no one can predict where diesel prices will go next. Still, teams can monitor changing market conditions and make decisions before those conditions negatively impact project success.
