Navigating Sector Rotation: Leveraging Labor Market Trends in Construction and Engineering vs. Food Products

The U.S. labor market has long served as a barometer for economic health, with metrics like average weekly hours offering critical insights into sector-specific performance. For investors, understanding these trends is essential for crafting rotation strategies that align with macroeconomic cycles. Recent data and historical backtests reveal a compelling case for overweighting Construction and Engineering while underweighting Food Products, driven by divergent labor market trajectories.

The Labor Market as a Sector Rotation Signal

Average weekly hours, tracked by the Bureau of Labor Statistics (BLS) via the Current Employment Statistics (CES) survey, reflect real-time shifts in labor demand. For Construction, the data shows a -0.1% decline in average weekly hours in recent months, signaling potential cyclical adjustments. Meanwhile, the Food Products sector, though part of the broader manufacturing category, has seen modest employment gains but a -0.2% drop in average weekly hours, suggesting weaker labor input growth.

Historical backtests from 1939 to 2015 underscore these dynamics. Construction, a cyclical sector, has historically outpaced the broader economy during expansions, with employment growing at an annualized rate of 2.3% over the 76-year period. In contrast, the Food Products sector, as part of manufacturing, peaked in 1979 at 19.6 million jobs but has since declined by 35%, reflecting structural shifts toward service-providing industries.

Why Construction Deserves an Overweight

1. Resilience in Cyclical Demand: Construction is inherently tied to infrastructure, housing, and public works projects, which often receive policy tailwinds during economic recoveries. For example, post-World War II expansions and New Deal-era projects historically drove construction employment to new highs.
2. Wage Premium and Productivity Gains: In April 2025, construction wages hit $39.33/hour, a 24% premium over the average private-sector worker. Productivity in industrial and residential construction also saw significant gains from 2019 to 2023, outpacing many other sectors.
3. Policy and Infrastructure Tailwinds: With federal investments in infrastructure and housing, construction is poised to benefit from sustained demand. The sector's 5.1% share of nonfarm payroll employment and 4.4% GDP contribution in 2023 further highlight its economic significance.

Why Food Products Warrants an Underweight

1. Stable but Low-Growth Trajectory: While food manufacturing added 3.1 thousand jobs in April 2025, its 0.2% growth pales in comparison to construction's 11,000-job gain. The sector's reliance on steady consumer demand makes it less responsive to cyclical booms.
2. Productivity Challenges: Unlike construction, food manufacturing lacks detailed productivity metrics, and its employment share in manufacturing has declined from 30.3% in 1939 to 8.6% in 2015. This reflects a long-term shift away from goods-producing industries.
3. Margin Pressures: Food Products companies face persistent cost-of-goods-sold (COGS) pressures due to supply chain volatility and input costs, limiting profit margins.

Strategic Implications for Investors

1. Overweight Construction-Linked ETFs: Position in funds like XHB or individual stocks such as Lennar (LEN) and D.R. Horton (DHI) to capitalize on infrastructure and housing demand.
2. Underweight Food Products Exposure: Reduce allocations to sectors like XLP or specific food manufacturers, which may underperform in a high-interest-rate environment.
3. Monitor Labor Data for Rotation Cues: Track the CES2000000002 series for Construction and AWHAECON for broader economic trends. A rebound in construction hours could signal a rotation back into cyclical sectors.

Conclusion

The interplay between labor market strength and sector performance is a powerful tool for strategic allocation. By overweighting Construction and Engineering—driven by its cyclical resilience and policy tailwinds—and underweighting Food Products, investors can align their portfolios with macroeconomic momentum. As the labor market evolves, continuous monitoring of average weekly hours will remain critical for dynamic sector rotation.