Making a New Home

ABC economist: ‘Tougher times’ may be ahead for contractors

2 min read

Table of Contents

Dive Brief:

  • Investments in commercial construction grew by a modest 3% annualized rate during the final quarter of 2020, while the U.S. economy as a whole grew at an annualized 4% rate in that same period, according to Associated Builders and Contractors.
  • “Some observers may say that the economic recovery that began in May 2020 is neatly in place, but that is simply not true,” Anirban Basu, ABC’s chief economist, said in the release. Basu said that the U.S. economy grew by 33.4% during the third quarter, but was followed by slower growth to close out the year, pointing to further uncertainty for U.S. construction firms.
  • “The near-term outlook for nonresidential construction is not especially optimistic,” said Basu. “Leading indicators of commercial construction, including ABC’s Construction Backlog Indicator and Construction Confidence Index as well as the American Institute of Architects’ Architecture Billings Index, signal tougher times ahead for many contractors.”

Dive Insight:

The U.S. economy could be shrinking and key industries — like traditional retail, hotels, sports venues and restaurants — will likely continue to suffer, Basu added.

“Office, lodging and shopping center segments appear especially vulnerable,” Basu said.

Construction of those types of buildings — especially ones where people frequently congregate — may continue to adapt as a result of coronavirus. Hotels will be retrofitted and designed to allow for guest self-service. Office spaces will likely continue to incorporate collaboration in design, but need to accommodate spacing — both within each office space and in lobbies.

Meanwhile, the Rider Levett Bucknall Comparative Cost Index — which tracks the true bid cost of construction, including labor, materials and general contractor and subcontractor overhead costs and fees — detailed how major U.S. cities measured saw positive growth in construction costs from October 2019 to October 2020.

In boom times, construction costs typically increase more rapidly than the net cost of labor and materials, the report says. This happens as the overhead levels and profit margins are increased in response to the increasing demand.

“In the first half of 2021, the overall economy is unlikely to accelerate,” said RLB North America president Julian Anderson in a news release. “But in the second half of the year, as the agenda of the Biden administration gains traction with its recovery and stimulus plans — particularly programs that address both infrastructure improvement and job creation, which are likely to receive bipartisan support — I’m optimistic that we could see a dramatic comeback for the AEC industries.

For the latest data about the construction industry, click here.

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