Wages in the construction industry will continue to move higher, with lower-skilled workers experiencing the strongest growth. Minimum wage increases on both coasts are helping to increase the floor for unskilled wages. Average construction wages will grow 3.2 percent in 2018, compared with 2.0 percent for skilled workers. Slowing nonresidential fixed investment combined with an influx of less-productive workers will keep skilled wages subdued in 2018. However, expect stronger demand in nonresidential spending in 2019 and 2020 to fuel an acceleration in skilled wages.

Pacific Northwest: Strong economic growth, minimum wage increases, and tightening labor markets support construction activity.

• Local labor-market conditions: Labor markets have tightened in the Pacific Northwest, with unemployment expected to average 4.6 percent in 2018, down from 4.8 percent in 2017. Minimum wage increases in Portland and Washington have also raised the floor for low-skilled workers.
• Construction spending outlook: Construction activity is expected to peak in 2018 thanks to an 8.3 percent surge in real infrastructure spending. Residential spending and nonresidential spending improved in the 3 percent range in 2018, but will begin moving lower in 2019 and beyond.
• Construction employment growth: Construction employment in the region has been robust, growing an average of nearly 7.0 percent per year over the past five years. Employment growth will slow from 6.0 percent in 2018 to 3.6 percent in 2019 and 2020. Recruiting workers will be a challenge for the region, particularly in Oregon, where more than 30 percent of the state is over the age of 55.
• Skilled wage outlook: Skilled wage growth will average 3.6 percent between 2018 and 2020. Welders will experience the strongest wage growth at 4.2 percent over this period, followed by electricians (4.1 percent), boilermakers (3.7 percent), and pipefitters (2.4 percent).

West North Central: Skilled wage growth will average 3.6 percent annually between 2018 and 2020. Few available workers due to low population density will keep labor markets tight in the region.

• Local labor-market conditions: The West North Central has some of the tightest labor markets because of low population density and aging demographics. The unemployment rate in this region averaged 3.4 percent in 2017 and will fall to 3.1 percent in 2018, the lowest regional unemployment rate in the country.
• Construction spending outlook: A surge in infrastructure spending in 2019 will be offset by weakness in the residential and nonresidential sectors. Real construction spending will average flat growth through 2020.
• Construction employment growth: Construction employment was flat in 2018 but will resume growth in the 3 percent range in 2019 through 2020, adding 10,000 workers per year.
• Skilled wage outlook: Skilled wages will average 3.6 percent growth between 2018 and 2020. Welders will experience the strongest wage growth at 4.2 percent, followed by electricians (4.0 percent), pipefitters (3.1 percent), and boilermakers (3.0 percent).

Mountain: Skilled wage growth in the Mountain region will average 3.4 percent annually between 2018 and 2020. Low unemployment will contribute to competition for construction workers despite construction activity peaking in 2018.

• Local labor-market conditions: Labor markets in the Mountain region are among the tightest in the United States, with the unemployment rate expected to average a low of 3.2 percent in 2018. A rebound in oil prices will increase demand for skilled workers in an already tight labor market.
• Construction spending outlook: Post-recovery construction spending will peak in 2018 thanks to strong growth in residential and infrastructure spending. We expect to see a correction in housing spending as increasing interest rates and construction costs weigh on new spending. Nonresidential and infrastructure spending will gradually move lower through 2020.
• Construction employment outlook: Improving activity in oil and gas will help boost employment growth through 2020, more than offsetting declines in commercial and industrial construction sectors. The region will add an average of 15,000 construction workers per year through 2020.
• Skilled wage outlook: Skilled wages will average 3.4 percent growth between 2018 and 2020. Welders will experience the strongest wage growth at 3.9 percent, followed by electricians (3.6 percent), boilermakers (3.1 percent), and pipefitters (2.9 percent).

New England: Skilled wages in New England will average 3.3 percent annual growth between 2018 and 2020 as the residential and infrastructure sectors continue to see growth.

• Local labor-market conditions: Labor markets in New England are tight across the board. New Hampshire, Vermont, Maine, and Massachusetts have the tightest labor markets with an unemployment rate well below the national average, while unemployment in Connecticut and Rhode Island is closer to 4.0 percent. Labor markets in New England are aging quickly; 15 percent of New Hampshire’s population will reach retirement age over the next 10 years.
• Construction spending outlook: The construction spending outlook in New England has been revised upward, led by improvements in residential spending. Expect residential activity to rebound in 2019 and remain in positive territory through 2020 before drifting lower. Infrastructure will also bring temporary pressure to the construction sector with positive growth in 2018 and 2019.
• Construction employment outlook: Construction employment in New England will jump 5.4 percent in 2018, but will moderate to 3.4 percent growth through 2020 with the sector adding 13,000 construction workers per year through 2020.
• Skilled wage outlook: Skilled wages will average 3.3 percent annual growth between 2018 and 2020. Electricians will experience the strongest annual wage growth of 3.5% followed by welders (3.4 percent), boilermakers (3.2 percent), and pipefitters (3.0 percent).

Gulf Coast: Skilled wages stalled in 2018 but are expected to increase through 2020 as higher oil prices boost activity in the oil and gas sector.

• Local labor-market conditions: The regional unemployment rate will average 4.2 percent in 2018, slightly higher than the national average. Labor markets are tightest in Arkansas, Oklahoma, and Texas where unemployment rates are slightly lower than the national average. Unemployment in Louisiana and New Mexico will average closer to 5 percent.
• Construction spending outlook: Construction spending will accelerate in 2018 and 2019 as spending in the residential sector continues to accelerate, averaging 3.6 percent annual growth through 2020. Higher oil prices will also stimulate demand for skilled workers, as infrastructure spending boosted by reconstruction and pipeline spending will outpace the national average, growing 4.4 percent per year over the same period.
• Construction employment growth: Construction employment growth will slow from 5.0 percent growth in 2018 to 3.8 percent growth by 2020, the third fastest pace in the country. The region will add 47,000 construction jobs per year through 2020, boosted by the oil and gas sector, strong regional growth, and continued reconstruction following Hurricane Harvey, which hit in 2017.
• Skilled wage outlook: Skilled wage growth will average 3.3 percent between 2018 and 2020. Electricians will experience the fastest pace of growth at 4.4 percent over the next three years, followed by pipefitters (3.0 percent), welders (2.9 percent), and boilermakers (2.8 percent).

Middle Atlantic: Skilled wage growth in the Middle Atlantic will average 3.3 percent growth annually between 2018 and 2020. Wages for most occupations stalled in 2018, but welder wages grew 5.2 percent. Looking forward, expect to see wage growth in the 3–4 percent range.

• Local labor-market conditions: Labor markets in the Middle Atlantic continue to have some slack, with unemployment remaining around 5 percent in the District of Columbia and West Virginia. Virginia stands out as having the tightest labor market with an unemployment rate of 3.2 percent. An increase in Maryland’s minimum wage will add some pressure to low-skilled worker wages in the state.
• Construction spending outlook: The infrastructure sector will lead the region in growth over the next three years, expanding by 3.1 percent annually through 2021. Residential spending is expected to accelerate through 2020 after a slight correction in 2018, while nonresidential spending growth will remain relatively flat.
• Construction employment outlook: Construction employment growth in the Middle Atlantic will trail behind most of the country, averaging 2.8 percent growth through 2020. The region will add 19,000 construction workers per year over the next three years.
• Skilled wage outlook: Skilled wages will average 3.3 percent growth between 2018 and 2020. Welders will experience the strongest average growth at 4.2 percent, followed by boilermakers and pipefitters (3.0 percent), and electricians (2.9 percent).

West Coast: Skilled wage growth on the West Coast will average 3.3 percent annually between 2018 and 2020. The West Coast will lead the country on construction spending activity, but spending levels remain 10 percent lower than the pre-recession average.

• Local labor-market conditions: Labor-market conditions on the West Coast are slowly tightening, but the unemployment rate remains elevated compared with the national average. Labor markets in Arizona and Nevada still have considerable slack, with the unemployment rate averaging 4.6 percent. California is only slightly better with an unemployment rate of 4.2 percent. Minimum wage increases in California and Arizona will add pressure to low-skilled worker wages.
• Construction spending outlook: Spending remains robust across the residential, nonresidential, and infrastructure sectors. Residential will continue to experience the strongest pace of spending growth, averaging 6.9 percent annually through 2020 followed by 5.5 percent in infrastructure and 2.3 percent in nonresidential structures.
• Construction employment outlook: The construction industry is experiencing the fastest employment growth in this region, outpacing the rest of the United States. Construction employment will grow an average of 5 percent per year through 2020, with the industry adding an average of 56,000 construction workers per year.
• Skilled wage outlook: Skilled wage gains will average 3.3 percent between 2018 and 2020. Welders will experience the strongest wage growth of 4.1 percent, followed by electricians (3.2 percent), pipefitters (3.0 percent), and boilermakers (2.7 percent). Unskilled workers will also face strong wage pressure due to rising minimum wages in the region. California is currently targeting a minimum wage of $15/hour by 2022.

Southeast: Skilled wage growth in the Southeast will average 3.2% growth annually between 2018 and 2020. Reconstruction around the Gulf Coast is supporting wages for electricians and welders.

• Local labor-market conditions: The unemployment rate remains elevated in Mississippi at 4.7 percent. The rest of the region, however, is moving closer to the national average, with the unemployment rate falling below 4.0 percent in Alabama, Florida, South Carolina, and Tennessee.
• Construction spending outlook: Residential construction spending was already receiving a boost from reconstruction efforts from Hurricane Irma in 2017. Additional reconstruction will be necessary following hurricanes Florence (South Carolina) and Michael (Florida), which occurred after our third quarter 2018 forecast was released.
• Construction employment outlook: Construction employment will average 4.1 percent annual growth between 2018 and 2020, with the region adding an average of 56,000 construction workers per year over the same period.
• Skilled wage outlook: Skilled wages will average 3.2 percent growth between 2018 and 2020. Welders will experience the strongest average growth at 3.9 percent, followed by electricians (3.8 percent), pipefitters (2.8 percent), and boilermakers (2.4 percent). Welder wage growth surged in 2018 after relatively flat growth in 2016 and 2017.

Midwest: Skilled wage growth in the Midwest will average 3.0 percent annually between 2018 and 2020. A resurgence in manufacturing activity will support activity in infrastructure and residential construction.

• Local labor-market conditions: Labor-market tightness varies across the Midwest, but a resurgence in manufacturing is helping to bring down unemployment rates. Wisconsin has the tightest labor market, with unemployment averaging 2.9 percent. Indiana and Minnesota have unemployment rates around 3.0 percent, while Ohio, Illinois, and Michigan still have elevated unemployment rates upwards of 4.3 percent.
• Construction spending outlook: An improving manufacturing economy will provide some support to residential spending in the region, which will grow an average of 1.0 percent per year between 2018 and 2020. Infrastructure will experience the strongest growth at 2.0 percent per year over the same period.
• Construction employment outlook: Construction employment growth will slow form 4.4 percent in 2018 to 2.9 percent in 2019 and 2020. The region will add an average of 34,000 workers per year over the same period.
• Skilled wage outlook: Skilled wages will average 3.0% growth between 2018 and 2020. Electricians will experience the strongest growth at 4.0 percent, followed by welders (3.9 percent), pipefitters (2.4 percent), and boilermakers (1.8 percent). Boilermaker wages are expected to decline slightly in 2018 following robust growth of 4.8 percent in 2017.

New York/New Jersey: Skilled wage growth in New York/New Jersey will stall in 2018 in response to weakening construction activity. Expect modest wage growth to resume in 2019.

• Local labor-market conditions: Unemployment rates in New York and New Jersey have moved above the national average, averaging 4.4 percent and 4.3 percent in 2018 respectively.
• Construction spending outlook: The construction market is experiencing a downturn due to a heavy correction in residential spending and declining infrastructure activity. Total construction spending will fall an average of 1.1 percent per year between 2018 and 2020, the worst regional performer. Residential construction activity will be hit the worst, declining an average of 4.1 percent per year over the same period.
• Construction employment outlook: Employment growth in the construction industry will remain weak, growing only an average of 1.6 percent per year between 2018 and 2020. The region will add only 9,000 jobs per year, a surprisingly weak number given the region’s size.
• Skilled wage outlook: Skilled wages will average 2.7 percent growth between 2018 and 2020. Welders will experience the strongest wage growth, at 3.1 percent. Boilermakers will experience 2.8 percent annual growth over the same period followed by pipefitters (2.5 percent) and electricians (2.4 percent).

Emily Crowley, principal economist, Pricing and Purchasing, IHS Markit