Looking Ahead to Working 2021 During Pandemic
As we head into Q4 of 2020, there won’t be many people unhappy to turn the calendar to 2021. COVID-19 has impacted the construction industry in a variety of ways and unfortunately, it has not magically disappeared and continues to spread. Industry experts and economists predict there are construction challenges to watch as we look forward to a new year.
Long before the pandemic took hold, the construction industry was facing a historic shortage of skilled labor. Even though the coronavirus has impacted the economy and workforce at large leading to job losses in other industries, the issue regarding skilled labor remains. In some cases, the need has increased as some construction workers have stepped away from their positions due to illness, concerns about contracting COVID-19, or family responsibilities. Additionally, as the virus spikes in various parts of the country and around the world, the lack of worker migration to markets with more job opportunities may be difficult and lead to shortages.
While this seems contradictory to what has just been stated, there are various sectors of commercial construction that are already beginning to see a decline that is likely to continue. As people work remotely instead of needing to be in large offices, and as travel and tourism stagnates, high rises and hotels are put on hold with future growth remaining uncertain. Equally unknown is when there will be a need for large sports and performance venues. Additionally, while hospitals are packed with COVID patients, they often must decline more lucrative elective surgery and other non-essential procedures. Thus, the construction of new healthcare facilities also could drop significantly.
Associated Builders and Contractors’ Construction Backlog Indicator fell to 7.5 months in September, a decline of 0.5 months from August’s reading and 1.5 months lower than last year at this time. In addition, the association’s Construction Confidence Index readings for sales and profit margins also decreased.
“Predictably, backlog has also declined rapidly in the commercial/institutional segment,” said ABC Chief Economist Anirban Basu. “In addition, backlog has also declined in the infrastructure category, yet was higher in the heavy industrial category, a segment that is coming back due to a combination of an inventory rebuilding cycle, surging e-commerce demand and reshoring of production back to America.
Falling construction costs
Since March, a number of issues related to the pandemic have impacted construction costs and they have fallen for the first time since 2010. This could lead contractors to feel a pinch in profits. It is especially true as raw material costs rose by 2.2% in June and non-residential material inputs rose by 2.3.
This leads to the next issue.
A number of factors, including manufacturing shutdowns due to outbreaks of COVID-19, have caused skyrocketing costs for lumber and other building material items such as roofing, windows, metal connectors and more.
“Despite the lingering pandemic, the global economy has been recovering, increasing demand for key commodities,” Basu said. “Rapid viral spread, including in Europe and parts of North America, render materials shortages more likely during the winter months.”
Supply chain issues
Supply chain disruptions have caused construction businesses across the industry to reevaluate their operations.
“Beyond major producing regions in the global construction supply chain such as Chinese copper and steel, Canadian lumber, Italian marble and ceramic tile from Brazil, Spain and Turkey, a range of other materials and equipment are sourced globally, including paving stones, lighting, electrical equipment and elevators,” Moody’s analysis said.
In many instances, the disruption then generated project slippage and/or extra costs. Moving forward, contractors must be proactive to keep businesses going.
Diminished state and local government revenues
Basu said this is one of the top challenges facing contractors right now. A report from the Brookings Institution projects that state and local government revenues will decline $155 billion in 2020, $167 billion in 2021 and $145 billion in 2022 — about 5.5%, 5.7% and 4.7%, respectively — excluding the declines in fees to hospitals and higher education.
This means that state agencies such as departments of transportation have less money to fund infrastructure initiatives like roads, bridges and transit projects. Many states, including California, will look to the federal government for additional revenue.
The California government is currently appealing the decision by the Trump administration to deny federal funds that would be used to help with rebuilding destroyed infrastructure and covering damages from the deadly wildfires.
“Many of the counties impacted by these wildfires are still recovering from previous devastating wildfires, storms, and the effects of the COVID-19 pandemic,” Gov. Gavin Newsom wrote in his letter asking for federal funds, saying the “recovery efforts remain beyond the State’s capabilities. The longer it takes for California and its communities to recover, the more severe, devastating, and irreversible the economic impacts will be.”
Source: Construction Dive