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Survey: Contractors Fear Pandemic Implications

Monday, October 26, 2020

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In an August reader survey published by Associated Builders and Contractors, research found that more than 85% of American contractors have been negatively impacted by COVID-19 and expect to see the implications continue into 2021.

The survey was taken by 263 contractors across the United States.

“While the survey respondents’ concerns about market viability and the health fears of the virus itself will remain in place for the duration of 2020 and into next year, contractors did report bright spots, such as a widespread adoption of technology after the outbreak of COVID-19,” said Lauren Pinch, Editor-In-Chief of Construction Executive, the entity that conducted the survey.

“That said, as the pandemic continues to change the landscape of the U.S. construction industry and state and local economies, contractors are continuously trying to assess the near- and long-term effects.”

Survey Results

Although construction has been considered an “essential” service in many areas during the global pandemic, potential long-term implications are concerning contractors, with 70% expecting that the industry won’t stabilize until 2021 and 10.4% believing it could never reach pre-pandemic levels.

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In an August reader survey published by Associated Builders and Contractors, research found that more than 85% of American contractors have been negatively impacted by COVID-19 and expect to see the implications continue into 2021.

However, many contractors (78.89%) also report that they have not witnessed drastic impacts to their businesses and have not had to delay or shift project plans as a direct result of the pandemic, as of yet.

According to ABC’s take on the survey, supply chain disruptions, prolonged municipal permitting processes and delayed inspections due to office closures are just some of the factors contributing to the increased rate of postponement and/or cancellation of construction projects.

Of the projects continuing to move forward, contractors ranked the following market sectors in order of highest to lowest viability:

  • Health Care (19.74%);
  • Government (15.34%);
  • Multifamily (14.77%);
  • Heavy/Highway (13.64%);
  • Manufacturing (12.93%);
  • Educational (11.36%);
  • Retail/Mixed Use (4.55%);
  • Offices (4.12%);
  • Institutional (1.99%); and
  • None of the above (1.56%)

In addition to these numbers, 74.5% contractors reported that sales of newly built single-family residential homes were trending upward and 47.83% reported an increase in new condominium sales. Yet, while the industry expected to see an uptick in office renovations and HVAC upgrade projects due to social distancing and the concern over indoor air quality, more than three-quarters of respondents (76.12%) stated that that wasn’t the case in offices, and only 31.79% of respondents stated that the HVAC presumption was true.

In addition to asking contractors about market sectors and a variety of projects, EC also asked respondents to share what their top concerns were over risks posed by the virus. According to the data, top fears included:

  • Health fears (15.25%);
  • Changing project timelines (13.19%);
  • Supply chain disruptions (11.7%);
  • Worker shortage (10.44%);
  • Technology adoption (4.7%); and
  • Difficulty paying invoices (2.29%).

Moving forward through the pandemic however, a majority of contractors showed optimism in regard to technology adaptation post COVID-19, with 69.15% reporting that the remote workforce would adapt in order to optimize productivity levels. Another 75.12% believed that the construction industry might even see an uptick in construction training programs, as people begin to seek out new types of work.

Specialty trades, apprenticeship programs, project management training and more tech-focused construction jobs were all listed as areas that contractors believe will see high levels of interest.

Project Backlogs

While the survey reports a mixture of fear and optimism over construction projects, ABC has also been publishing updates on its Construction Backlog Indicator as a means to track how the pandemic has affected the industry in comparison to 2019.

Most recently, ABC reported earlier this month that its Construction Backlog Indicator fell to 7.5 months in September—a decline of .5 months from the previous month. According to the Survey, the backlog is 1.5 months lower than in September 2019.

The backlog slipped slightly by most metrics from August to September, including:

  • Commercial & Institutional – from 7.8 to 7.4;
  • Infrastructure – from 9.6 to 7.4;
  • Middle States – from 7.0 to 6.7;
  • Northeast States – from 7.7 to 7.4;
  • West States – from 8.9 to 6.3;
  • Company size of $30 million or less – from 7.4 to 6.9;
  • Company size of $50-100 million – from 9.2 to 7.2; and
  • Company size of $100 million or greater – from 11.4 to 10.1.

“ABC’s survey data indicate that we are in the early stages of a nonresidential construction spending downturn,” said ABC Chief Economist Anirban Basu. “With few exceptions, declines in backlog have begun to accelerate across all markets and regions. This has been most pronounced in the West, which is largely a reflection of the many challenges facing California’s economy.

“Predictably, backlog has also declined rapidly in the commercial/institutional segment. In addition, backlog has also declined in the infrastructure category, yet was higher in the heavy industrial category, a segment that is coming back to due to a combination of an inventory rebuilding cycle, surging e-commerce demand and reshoring of production back to America.”

August’s reading rebounded to 8.0, an increase of .2 months from July. At that time some highlights of the Construction Confidence Index included:

  • The CCI for sales expectations increased from 47.2 to 53.0 in August;
  • The CCI for profit margin expectations increased from 42.7 to 47.8; and
  • The CCI for staffing level expectations increased from 50.6 to 54.4.

Previously, ABC’s member survey conducted from July 20 to Aug. 5, showed a decrease in July by a full month year over year, and decreased .3 months since June for an indicator of 7.8 months.

According to Basu, the decrease was attributed to the deeply problematic issues sprouting from the pandemic. The issues included communities rolling back their reopening plans and contractors struggling to secure work as fewer projects are bid out and work continues through backlogs, among others.

An uptick was noted in a report of 8.1 in June. While backlog had increased, that same report found that confidence among U.S. construction industry leaders also increased regarding staffing levels, profit margins and sales in June. However, projected that over the next six months, profit margins would decline, falling more in line with the Turner Index.

That profit margin decline is also illustrated by combining the backlog and competitive bidding with the ABC’s recent analysis of U.S. Bureau of Labor Statistics’ Producer Price Index, which showed that nonresidential construction input prices rose by 2.3%—following a rise in prices of .8% in May.

   

Tagged categories: Associated Builders and Contractors Inc. (ABC); COVID-19; Economy; Health and safety; Maintenance + Renovation; Market; Market data; NA; North America; Project Management; Projects - Commercial; Safety

Comment from john lienert, (10/26/2020, 6:40 AM)

Pelosi will lower backlog to ZERO


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