This week marks the one-year anniversary of when the coronavirus pandemic became real for construction in the United States.
On March 17, 2020, Mayor Marty Walsh halted most construction in Boston, making it the first major U.S. city to issue a stop work order of that magnitude.
It wasn’t the last. Other metropolises, and indeed, entire states, followed suit as the reality of a quickly spreading global crisis set in. Terms like social distancing and PPE entered Americans’ collective vocabulary as contractors worked to adjust to what everyone was calling the new normal.
But there was nothing normal about the 12 months that followed, as the U.S. suffered more than 534,000 COVID-19 deaths and saw 29.5 million cases of the deadly virus. Businesses of all sizes, construction firms included, struggled to stay afloat as the pandemic took the global economy on a rollercoaster ride that still hasn’t ended.
As we mark the one-year anniversary of the COVID-19 crisis, Construction Dive looks at five charts that capture the impacts of a tumultuous year in construction and what they portend for the months ahead.
As job after job shut down across the country starting last March, construction employment plummeted dramatically.
“The impact of COVID really was pretty stark, and it was honestly pretty quick,” said Curt Hellen, president of Tulsa, Oklahoma-based commercial contractor Stava Building Corp. during an Associated General Contractors of America webinar last week. “We had projects that were awarded and we had contracts signed on that were actually shelved.”
For Ali Mills, executive vice president of Pittsburgh, Pennsylvania-based highway contractor Plum Contracting, the fact that Pennsylvania Gov. Tom Wolf halted all non-emergency or hospital-related construction starting March 21 — a restriction that wasn’t lifted until May 1 — meant many of her employees were suddenly out of a job.
“We had to lay off 127 people, and that included management,” Mills said. “It was scary days for sure, not knowing what was in sight.”
A notable trend in the employment numbers, however, is the difference in the recovery of residential versus nonresidential construction jobs, as housing has boomed, while many commercial projects have remained on the sidelines.
“It’s been a growing dichotomy that residential is back to its pre-pandemic peak of February 2020, while non-residential has regained only 51% of those jobs,” Ken Simonson, chief economist at AGC, told Construction Dive.
Another metric that shows the hit that commercial construction has taken during the pandemic is the Architectural Billings Index. A measure of “work on the boards” at U.S. architectural firms, it shows the amount of design billings architects are taking on, with a score above 50 indicating an increase in billings from the previous month.
Because it tracks the design phase of projects, it provides a nine- to 12-month leading indicator of actual commercial construction work coming out of the ground.
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At the beginning of the pandemic, the ABI embarked on a downward trajectory from which it still has not recovered. Part of the reason why is that many commercial construction jobs, especially in hard-hit sectors, have been put on hold.
“I think it tells us that there’s a segment of the construction industry that’s still in disarray, and that’s commercial construction,” said Anirban Basu, chief economist for Associated Builders and Contractors. “Architects tend to be involved in things like hotel projects, office buildings and shopping centers. Those are the weak segments.”
Indeed, projects that Hellen’s firm was ready to begin, but which were put on hold at the beginning of the pandemic, included multifamily, retirement developments, retail, and any type of space where people assemble or events are held.
“We have a project that has now been pushed, at least, to fourth quarter of this year,” Hellen said.
One of the most notable impacts of the pandemic for construction has been the steep rise in prices of materials that have resulted from the domino effect of snafus in the global supply chain reverberating down to contractors.
“We can’t get the products fast enough into our yard, just to sit for who knows how long till we can use it, just so we can purchase it before the prices skyrocket,” said Mills, who noted that the resins in many of the highway materials she buys are also used in PPE, and are in short supply. “We’re also finding the things that were made fairly quickly and we never had trouble finding, there’s now huge lead times.”
Another reason that prices for steel, lumber and other building materials have spiked is that factories have scaled back due to worker shortages caused by COVID-19 illnesses, government restrictions or the need for workers to take care of family members, including their children, when in-person school shut down.
When factories have been able to produce materials, their products have often been snared in a tangled web of shipping disruptions and clogged ports. The result has been a frantic environment when it comes to pricing the jobs that are still moving forward in construction, and continued uncertainty about projects’ time horizons.
“The longest a supplier can hold pricing in some of these materials is just two weeks,” said Hellen. “If you put a budget together for a project, will it be green-lit in that time? Then, can you come to terms with that supplier to actually lock down the material prices in that time?”
His concern going forward is whether those materials will face even tighter supply, especially if the recently passed $1.9 trillion American Rescue Plan does its intended job and stimulates the economy.
“Is that going to drive additional demand in the marketplace?” Hellen said. “If it does, you are taking a scarce resource and adding additional demand to it.”
Those types of concerns about future demand can also be tied to the recent and surprising rebound in a backlog of projects at many contracting firms. When the pandemic first hit and new commercial projects were taken off the books, many contractors turned to jobs they had already sold, but hadn’t yet started.
While that backlog of projects added some stability during a fraught time, it also added anxiety for many firms, who worried about what would happen should backlog eventually run out.
But now, that doesn’t seem to be the case, as contractors have suddenly started replenishing their backlog again in the first months of 2021.
“Backlog was really falling quite aggressively into late last year, but since that time, it’s been coming back pretty quickly,” said Basu. “My theory about that is that a lot of the projects that were postponed earlier in the pandemic are now coming back to life, and so contractors are getting busy again.”
That rebound in backlog can also be seen in another forward-looking indicator for contractors, ABC’s Construction Confidence Index, which measures contractors’ expectations for sales, profit margins and staffing levels over the next six months.
“What we’ve seen recently is a complete reversal,” Basu said. “We saw expectations for sales begin to climb, and that coincided neatly with the restoration of backlog.”
The sharp rebound in contractor confidence in the first months of 2021 could mean a V-shaped recovery is already well underway.
“The stimulus is working. If you pump this many trillions of dollars into an economy, it’s going to work,” Basu said. He ticked off the $2.2 trillion included in the initial CARES Act, the $900 billion relief bill passed in December 2020 and the $1.9 trillion American Rescue Plan passed last week.
The result, he thinks, could portend one of the biggest economic boosts ever seen. Indeed, just as the pandemic of 1918 prefaced the Roaring ‘20s of the 20th century, a new decade of expansion could lie ahead in the 21st.
“We’re going to come roaring out of early 2021 into a very different world with very rapid economic growth,” Basu said. “The Roaring ’20s comparison makes some sense. I think it’s possible that we’re just going to have a massive decade.”
Source: Construction Dive