From All Systems Go to a Deep Recession in One Month

Associated Builders and Contractors Chief Economist Anirban Basu warned the economic recovery following the COVID-19 outbreak would be quite different for the nonresidential construction industry compared to previous recessions, according to an economic outlook published in Construction Executive magazine.

Normally, construction backlog, which stood at 8.2 months in February, according to ABC’s Construction Backlog Indicator, safeguards the nonresidential construction sector from the early stages of economic downturns, making it the last segment to enter a recession. However, given project shutdowns in parts of Pennsylvania, Massachusetts and California, as well as social distancing and other health requirements, that hasn’t proved true.

“Projects are being postponed or even canceled in large numbers, as would-be purchasers of construction services strive to preserve their own liquidity,” said Basu. “Consequently, backlog is not the shield that it normally is, and it is shrinking rapidly.”

While certain segments of the nonresidential constructions sector will experience a jolt of activity during the foreseeable future, including fulfillment centers, medical facilities and data centers, most construction segments will experience decline, including office, lodging and retail segments—even as people return to work and the economic engine restarts.

“Complete recovery from the recession will likely take years. One of the reasons for this is that state and local government budgets are now under severe pressure. With retail sales, hotel and income tax revenues declining, many state and local governments are now experiencing the emergence of massive gaps in their budgets; budgets that must be balanced each fiscal year. There will also be many empty storefronts, fewer occupied apartments and office suites, and a diminished tally of employers available to jobseekers once the pandemic has passed.”

All Construction Executive readers are invited to register for an exclusive Mid-Year Economic Outlook webinar on June 10 at 2 p.m EDT, which will provide a candid assessment of the market impact of COVID-19 crisis on the construction sector for the rest of 2020.

To access more business news, visit NJB News Now.

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