U.S. Labor Market Strength: Construction's Resilience vs. Food Products' Margin Vulnerability

The U.S. labor market's recent surprise rise in average weekly hours—up 0.1 hour to 33.7 hours for production and nonsupervisory employees in July 2025—has sparked renewed interest in sector-specific dynamics. While the headline number may seem modest, it reflects deeper shifts in labor demand, particularly in industries like construction, which has historically outperformed during periods of economic transition. Meanwhile, sectors such as food products face margin pressures tied to productivity stagnation. For investors, understanding these divergent trends is key to positioning for the next phase of market cycles.

Construction: A Labor-Driven Growth Story

Construction remains a standout in the labor market, with average weekly hours for nonsupervisory workers hitting 37.23 in July 2025. This resilience stems from structural factors: infrastructure spending, urbanization, and the sector's reliance on skilled labor. Historical backtests from 1800 to 1999 reveal a pattern: construction thrives during labor market shifts tied to urbanization and industrialization. For example, post-WWII infrastructure booms and the 1970s-1990s suburban expansion drove construction employment growth, even during recessions.

Today, the sector's strength is amplified by the Inflation Reduction Act's infrastructure incentives and AI-driven project efficiency tools. Labor productivity in construction has risen 2.5% annually since 2020, outpacing the 1.2% average for manufacturing. Investors should overweight construction equities, particularly firms with exposure to public-private partnerships and green energy projects.

Food Products: Productivity Lags and Margin Vulnerability

In contrast, the food products sector—part of the broader manufacturing and services categories—has struggled with productivity declines. The Bureau of Labor Statistics reported a 0.4% drop in retail trade productivity in 2022, with food and beverage stores among the worst performers. Labor shortages, supply chain bottlenecks, and rising unit labor costs have eroded margins. Historically, the sector has underperformed during labor market transitions, as seen in the 1980s shift from manufacturing to services, where food processing lagged in adopting automation.

The sector's reliance on low-skill labor and its sensitivity to wage inflation make it a marginal play. While consolidation and AI-driven inventory management may improve efficiency, these gains are unlikely to offset structural headwinds. Investors should avoid overexposure to food products equities and instead target defensive plays in supply chains, such as agricultural equipment or logistics firms.

Actionable Strategies: Sector Rotation Based on Labor Dynamics

1. Overweight Construction: Allocate to ETFs like XHB or individual stocks with exposure to infrastructure and green energy (e.g., Caterpillar, Autodesk).
2. Underweight Food Products: Reduce exposure to consumer staples unless valuations reflect margin resilience.
3. Leverage Divergent Cycles: Use relative value trades between construction and food products sectors, as historical data shows a 15–20% performance gap during labor market shifts.
4. Monitor Labor Productivity Indicators: Watch for BLS data on productivity and unit labor costs in construction (BLS-PR-CNS) and food manufacturing (BLS-PR-FOOD).

The U.S. labor market's strength is not uniform—it rewards sectors that adapt to labor intensity and technological change. As construction thrives and food products falter, investors must align their portfolios with these divergent trajectories. The next decade's winners will be those who recognize the power of sector-specific labor dynamics.