It may take at least 18 months for contractors to see a complete reconstruction of what was to be in 2020, before the outbreak of the coronavirus pandemic. But there is some good news, says Anirban Basu, chief economist, Associated Builders and Contractors.
“It will be the shortest recession in history,” he declares.
“By the third and fourth quarters there will be quite an impressive bounce-back in economic activity, although complete recovery will elude us for years,” Basu continues.
This, of course, is based on the virus not reappearing in the fall and the development of effective therapies.
In the meantime, it’s tempting for contractors to think this is familiar territory. But there are many nuances to grapple with before the industry finds a way out of the rubble.
“I think one thing that’s common with the Great Recession is jittery owners,” says Joe Natarelli, national construction leader with accounting firm Marcum.
These jitters are pushing pause on projects that would have been in full construction this spring. “We are seeing an increasing percentage of projects being canceled that haven’t even started,” says Ken Simonson, Associated General Contractors of America chief economist.
It didn’t help when the Architecture Billings Index experienced the largest drop in its 25-year history in March, falling by 20.1 points to a score of 33.3. This American Institute of Architects number charts shifts in billing from architectural firms and is used as a nine- to 12-month leading indicator for building construction.
“All of these are pretty negative signals for what’s coming down the pike for contractors,” Simonson says. “If it isn’t being designed, if owners aren’t paying for architects to be on the job, they’re not going to soon hire contractors.”
“The bottom has fallen out on design proposals with the exception of three specific markets: health care, transportation and water/wastewater,” says Frank Stasiowski, founder and CEO of consulting firm PSMJ Resources, which surveys architectural and engineering leaders on upcoming design proposals.
Since 2003, PSMJ Resources has asked leaders of architectural, engineering and construction firms to assess the strength of their markets, which is converted into a Net Plus/Net Minus Index (NPMI ). The NPMI value is calculated by subtracting the number of respondents who responded negatively (e.g. proposal activity is decreasing) from the number who responded positively (e.g. proposal activity is increasing). If the same number responded positively and negatively, the NPMI value would be 0. April’s index number was -41 percent.
“Right now, we’re eating up backlog,” Stasiowski says. “A lot of projects just went into the ground and they need to be built and the funding is approved. I don’t see lending institutions pulling funding.” This will lead to a busy summer, he says, but that backlog will not be replaced later in the year or going into 2021.
Richard Branch, chief economist for Dodge Data & Analytics, sees a 13 percent drop in both residential and nonresidential starts in 2020. Construction starts will then increase in 2021, with residential seeing a 3 percent rise and nonresidential going up 5 percent.