Construction Industry Trends: April 2022 Roundup

Amazing! Construction Industry Trends: April 2022 Roundup

Information about Construction Industry Trends: April 2022 Roundup

Phil Puccio

Opinion is mixed as to whether a recession will materialize, but if it does, the construction industry appears much better prepared to weather a downturn.

The United States is in the midst of one of the strongest periods of economic growth in nearly 40 years, but this rapid growth mixed with rising inflation concerns has some worrying about a possible downturn or recession. So is one coming? Opinions differ, but even if you do, it may not spell doom for the construction industry.

In early April, Deutsche Bank became the first of the major global banking firms to forecast an imminent “mild recession”. By the end of April, the company withdrew from this forecast and instead revised it down predict a deep recession. While other big banking firms weren’t ready to sound the alarm, others, including several construction industry pundits, are noting that the likelihood of a recession could be increasing.

In a recent presentation titled “No Time to Buy” by Associated Builders and Contractors (ABC) Chief Economist Anirban Basu, he noted how new Price inflation, which has risen to historic levels, has squeezed contractors over the past year. Construction prices rose 24.4% year-on-year through February. “This will be a year of growth, but 2023 could be very different,” he told ABC members during a March 30 webcast.

The Fed is expected to hike rates again soon to combat rising inflation, and this time the rate hikes could be larger. That could have an impact on the currently strong economy. “We think it’s very likely that the Fed will need to step on the brakes even more and a deep recession will be needed to get inflation under control,” Deutsche Bank economists noted in their April report.

Also in April, the Association of General Contractors (AGC) found that rising gasoline and especially diesel prices are leading to rising inflation and fears of recession among contractors – particularly those with large fleets of machinery and/or vehicles.

“This period is unique in how broad-based price increases are,” said Ken Simonson, AGC’s chief economist, who was quoted in one April Construction Dive article. “We used to only see a limited number of items that skyrocketed in price. This time it’s much larger in number and scope, long lead times, unexpected bottlenecks and things not showing up in the expected volumes or times.”

However, Simonson doesn’t necessarily see a recession ahead. “When I see the strong state and local governments in terms of their budgets, corporate balance sheets and household balance sheets, all of these things suggest that there is still plenty of purchasing power. And presumably some of that will lead to continued construction demand.”

Take away: So while it looks on the surface like a recession might be a little more likely, it’s far too early to push any panic buttons. And even if one does occur, here are a few reasons it might not be a bad thing for the construction industry:

  1. Most contractors and builders have been here before – and real lessons were learned during the mid-2000s recession (eg.
  2. Many also took advantage of this recession and a much milder economic downturn in the early 2010s to retool their organizations, migrating to modern technology platforms and changing the way they work – for the better.
  3. While some stalled projects can take a toll on wallets in the short term, contractors who haven’t modernized can take that time (like many of their peers before them) to make their own technology upgrades while the job is lighter. (Or they can try to catch up on backlog work, but smart money should be spent on the former).
  4. COVID has taught the industry how to be truly agile and flexible, proving that change is possible and better processes and workflows can be a reality.
  5. Even the worst forecasts currently available seem to indicate that this would be a shorter recession cycle, with market corrections set in by mid-2024.
  6. Many contractors have reportedly “stocked up” cash reserves and assets in “rainy day funds” to offset for the next business disruption. These contractors can theoretically float through a recession and spend on modernization at the same time.

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