Construction spending in February came in at a seasonally adjusted annual rate of $1.37 trillion, 6% above February 2019. January data was revised up to $1.38 trillion. Next month’s data will show only a portion of the coronavirus pandemic effects on the construction industry because most shelter-in-place orders did not occur until the middle of March or later; however, many states have designated construction as an essential service so activity will continue.
Home builders report that only five of 33 states with orders to close nonessential businesses do not consider construction activity as essential (with the exception of government infrastructure projects such as roads, sewers, telecommunications, etc.). While work continues, construction companies find themselves dealing with shortages of materials and equipment (including personal protective equipment or PPE) and a lack of workers because some have fallen ill. A survey by the Associated General Contractors of America found that during the week of March 23-26, 45% of respondents experienced delays and disruptions due to these reasons. Additionally, 39% were directed to cancel construction on a current project or on one that was supposed to start in April. We will begin to see these impacts in the April data, which will not be available until June.
A real-time data indicator, the American Institute of Architects’ Architecture Billings Index, was released as a special report in March. That survey found that over half of firms expect new work to decline in March; almost all expect revenue declines in April. Three-quarters of respondents have confronted issues related to COVID-19. With updated shelter-in-place guidelines from the federal government now extended to April 30, the second quarter of 2020 will prove to be difficult for the industry.
Bottom Line
Congress has begun discussions of a fourth financial rescue package after the $2 trillion dollar package that was passed last week. If more aggressive and extended shelter-in-place orders occur in April, we could see more rescue packages to try to blunt the blow caused to practically every industry. While much of construction has been designated as essential, the construction industry is not immune to the delays and other economic damage from the virus. Construction job losses may be minimal, however, because there was already a shortage of construction workers in the country.
Copyright © 2020 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.