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Economist predicts U.S. construction to lag behind during recovery

Don Wall
Economist predicts U.S. construction to lag behind during recovery

The chief economist of the Associated General Contractors of America has painted a bleak picture of the current U.S. construction landscape and says recovery prospects are expected to lag behind the rest of the U.S. economy.

Ken Simonson spoke at an economic impact webinar hosted by ConstructConnect on May 7 and a day later he released the findings of the association’s latest survey of 800 contractors.

In all, 67 per cent of firms report having a project cancelled or delayed since the start of the outbreak in early March.

Reasons cited for the disruptions varied, with 30 per cent of firms reporting projects being halted by government order, 37 per cent saying project owners have halted work out of fears of the COVID-19 pandemic, 31 per cent indicating that owners have cancelled projects because of a predicted reduction in demand and 21 per cent reporting having projects cancelled due to financing shortfalls.

“We have already heard this week, the seventh of May…that 48 per cent said a project that was underway this month was halted,” Simonson said.

“More ominously, the percentage who say that a project that was scheduled to start in May or June or later, the cancellation rate had been rising, as of last night (May 6), it was 20 per cent. It was 16 per cent two weeks ago so cancellations are rolling in at a steeper rate.”

The economist said the loss of 975,000 construction jobs from March to April represented nearly 13 per cent of the industry’s employment and was the worst one-month decline ever.

Simonson told the ConstructConnect audience he did not foresee a construction recovery keeping pace with restarts in other parts of the economy.

“As the economy opens up, other industries will be way ahead of construction, unfortunately,” he commented. “Many firms are going to find customers they are counting on have either closed up shop or ‘we no longer see the need to open a restaurant in our chain,’ or a state or local government will say, ‘we have a lot of unbudgeted expenditures, we have a balanced budget requirement, our revenue is way down, so we have to put off building that new school that we had in our capital budget for next year.’

“So by and large I feel construction will be a lot slower coming back than the rest of economy.”

The association has been conducting surveys of contractors weekly or bi-weekly during the pandemic.

The latest survey indicated that fewer contractors reported having to shut down projects due to lack of personal protective equipment than in the prior survey.

“I am hoping that means that construction firms are finally able to access masks and other equipment to ensure their employees can stay safe on the job,” said Simonson.

Contractors are also reporting concerns on several legal fronts. One relates to the Paycheck Protection Program (PPP) through which construction employers were able to keep workers on the job.

“The construction sector was able to get PPP loans…that came out in April but there are questions about whether firms are exposing themselves to prosecution because they may not qualify for the rather stringent requirements for maintaining head count,” Simonson said. “That is obviously difficult in construction where head counts tend to fluctuate over the course of a project.”

Contractors are also reporting concerns about exposure to tort or employment liability in cases where a worker becomes infected on the job or is exposed to an infected co-worker.

“We have been asking about what sorts of legislation firms feel are needed, that is the number one concern in the survey we are completing today,” said Simonson.

 

Follow the author on Twitter @DonWall_DCN.

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