Construction investments shrank by roughly 30% last quarter

Associated Builders and Contractors reports major industry losses

Published July 31, 2020 by Sydney Lake

While the U.S. domestic gross product in the second quarter dropped to its lowest point since 1947, nonresidential and residential fixed investment contracted by 27% and 38.7%, respectively, the Associated Builders and Contractors (ABC) reported Thursday.

“Despite construction’s status as an essential industry in most cities and states, the sector did not escape the wrath of COVID-19 during the worst economic quarter on record,” ABC Chief Economist Anirban Basu said in a statement. The Bureau of Economic Analysis reported Thursday that the national GDP shrank by nearly 33% in the second quarter. ABC also reports that investment in nonresidential fixed structures contracted by 34.9%.

“ABC’s Construction Confidence Index indicates that a majority of contractors suffered some form of interruption to their activities during the second quarter, whether due to a lack of available inputs as global supply chains buckled, project postponements or cancellations, job-site workforce issues or state and local government mandates,” Basu said in a statement.

While retail and hospitality took a harder hit, construction activity also fell dramatically in the office, lodging and commercial sectors, the ABC reported.

“Many contractors in these segments maintain an ostensibly healthy level of backlog, according to ABC’s Construction Backlog Indicator, but the possibility of outright cancellation remains elevated as obtaining project financing becomes more challenging and vacant office and retail space accumulates,” Basu said.

The ABC expects recovery to be erratic during the next several months, which will in turn delay construction’s rebound, including “segments that are likely to be significant contributors to construction spending growth in the future, such as data centers, fulfillment centers, healthcare and manufacturing,” Basu said. “With case counts spiking in parts of the nation, the U.S. economy has yet to begin a rapid economic recovery.”