New construction projects decline as pandemic spins way out of control

The chief economist of Associated Builders and Contractors, Anirban Basu, recently detailed the toll that the COVID-19 pandemic has had, and is likely to continue to have, on the US construction industry. COVID-19 is still rampaging across the United States, infecting more than 216,000 people and killing more than 3,000 just yesterday. With so many sick people, patient data analysis is more important than ever. Job growth continues to slow down as another 850,000 American workers filed for unemployment last week.

Basu’s comments, which I’ll quote in a minute, came on the heels of a new ABD report showing that the number of new construction projects is trending downward. Specifically, the ABC Construction Backlog Indicator—which reflects the amount of commercial and industrial construction work that will be done over the coming months—now stands at 7.2 months; that’s 0.5 months lower than it was a month ago and 1.7 months lower than it was one year ago.

Also trending in the wrong direction is ABC’s Construction Confidence Index, which measures sales, profit margins and staffing levels. The sales index for November 2020 is 49.4, down from 52.7 in October 2020 and 63.8 in November 2019. Profit margins also fell, with an index reading of 43.4 for November 2020, compared to 47.1 a month ago and 58.8 one year ago. ABC regards an index reading of below 50 to be an indication of industry contraction.

While the staffing index reading remains above the critical threshold at 53.8, it’s down nearly three points from last month (56.6) and nearly 10 points from last year (63.6).

Basu explained that, while the construction sector came through the first few months of the pandemic relatively unscathed, the coming winter is going to be a different story.

“When the pandemic first struck down the economic expansion during the February-April timeframe, construction emerged as a relative bulwark of stability,” Basu said. “The sector’s essential industry status in most parts of the country, combined with significant pre-existing backlog, allowed much of industry’s activity to persist even as restaurant, retail, hotel, transportation, tourism and other segments suffered massive setbacks. But the protective shields that helped sustain industry performance have begun to weaken.”

He went on to describe the economic woes facing not only the construction industry, but the country in general:

“Many projects have been postponed, while others have been cancelled. New bidding opportunities have become rarer, helping to push backlog lower. The prospect of additional lockdowns hasn’t helped, with many investors remaining too uncertain to bring the next generation of commercial projects to market. Lending conditions have tightened.

“Many segments have been battered financially, including healthcare, certain manufacturing sectors and lodging. A number of contractors also report project delivery interruptions as workers become infected. That has helped to dampen confidence, with contractors collectively indicating expectations for lower sales and profit margins over the next six months.

“At the same time, the emergence of vaccine candidates provides light at the end of the tunnel, but 2021 is shaping up to be a challenging year for many contractors.”

Jeffrey Boyle

Jeffrey Boyle is from Madison, Wisconsin, where he obtained his bachelor's degree in business communications. When he's not reading or writing about construction equipment and machinery, he can probably be found walking--or being walked by--his three Boston Terriers.

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