US commercial construction poised for recovery
By Jenny Lescohier24 June 2020
A new survey conducted by the US Chamber of Commerce suggests commercial construction is positioned well for recovery post pandemic with eight in ten contractors (83%) expecting revenue to increase or remain the same in the next year.
The Q2 2020 USG Corporation + US Chamber of Commerce Commercial Construction Index reveals a drop in contractors’ confidence and outlook for their industry during the Covid-19 pandemic, but that’s not the full story.
Survey results were collected in April, at the height of shutdown restriction, causing the overall Index to plunge from 74 in Q1 to 56 in Q2. The drop reflects the fact that two of the Index’s main indicators — confidence in new business and revenue expectations — both fell 26 points, to 50 and 44, respectively, revealing the severe impact of the coronavirus pandemic on the construction industry.
According to the published results, very few contractors (16%) express high confidence in the market’s ability to provide new business opportunities in the next 12 months (down from 54% in Q1). Meanwhile, the percentage expecting to see their revenues decrease in the next 12 months spiked to 2% in Q1 to 21% in Q2.
Contractors’ view of their backlog of upcoming projects dropped only a modest three points, however, remaining consistent with the first half of 2018.
“No industry has been immune to the devastating impact of Covid-19,” said Neil Bradley, US Chamber of Commerce executive vice president and chief policy officer. “However, the commercial construction industry appears poised for a quick recovery and a return to growth. This is good news for the economy and the millions of Americans who work in the industry. Congress can help by continuing to support the economy.”
Ken Simonson, chief economist for Associated General Contractors of America (AGC), recently reported that, despite the negative effects of the current crisis, there are some areas of construction that could see an uptick, including telecommunications and distribution. For remaining sectors, however, he says it’s likely to be a slow road to recovery.
While some have predicted pent-up demand to create a wave of construction activity once the economy opens back up, Simonson cautions that owners, no matter who they are, will likely experience a period of financial difficulty until revenues and demand rise back up.
Despite Covid-19 shutdowns, 60% of contractors report having at least six months of backlog projects (compared to 69% in Q1), the survey says. More than eight in ten (83%) say their revenue will increase or remain about the same in the next year. And, three in four contractors say they have moderate or high confidence that the next year will bring sufficient new business opportunities (and in the next two years, that percentage rises to 93%).
This quarter’s Index also reveals that the commercial construction industry is an important employer during the pandemic and is ready to hire more workers. One in three contractors (32%) plan to hire more workers in the next six months, while nearly half (48%) believe their workforce will stay the same. Only 15% expect to employ fewer workers.
US construction employment rebounded by 464,000 jobs in May, but the total remained 596,000 below the latest peak in February and the industry’s 12.7% unemployment rate was the highest for May since 2012, according to an analysis of government data by the AGC.
Construction project delays have had a major impact on the industry, the Index revealed. Eighty-seven percent of contractors report they are experiencing delays due to the coronavirus outbreak. Also, 87% expect delays to continue into the summer and 73% expect delays will remain in the fall.
Contractors become less concerned about delayed projects as they look to the future, however. In April, over a third (35%) of contractors reported that at least 75% of their projects were delayed. Asked to look three months ahead, only 16% of contractors expected the same. Looking six months ahead, only 8% expect at least 75% of their projects to be delayed.