It may take years for economy to recover, construction economist says

Retail sales, hotel and income tax revenue declines part of the problem

Published May 15, 2020 by Sydney Lake

Associated Builders and Contractors Chief Economist Anirban Basu said that it will likely take years for the nation’s economy to recover from the COVID-19 pandemic’s blow.

“One of the reasons for this is that state and local government budgets are now under severe pressure. With retail sales, hotel and income tax revenues declining, many state and local governments are now experiencing the emergence of massive gaps in their budgets; budgets that must be balanced each fiscal year,” he said in a statement released Friday. “There will also be many empty storefronts, fewer occupied apartments and office suites, and a diminished tally of employers available to jobseekers once the pandemic has passed.”

Washington, D.C.-based ABC announced Tuesday that its Construction Backlog Indicator (CBI) fell to 7.8 months in April, the lowest it’s been in nearly eight years. The CBI is a forward-looking national economic indicator that shows work construction that companies are contracted to do in the future, measured in dollars.

“Backlog has not been quite the protective shield that it normally is during the early stages of an economic downturn,” Basu said. The CBI typically safeguards nonresidential construction from the early stages of economic downturns. This sector is typically the last to enter a recession, but given the sharp decline in April, it hasn’t been the case, according to ABC.

“Projects are being postponed or even canceled in large numbers, as would-be purchasers of construction services strive to preserve their own liquidity,” Basu said.

However, some segments of nonresidential construction including fulfillment centers, medical facilities and data centers could experience more activity, according to ABC. But most construction segments — including office, lodging and retail — will still experience decline.

Results from the most recent ABC member survey that was conducted April 20 through May 4 are low, with 55% of contractors expecting their sales to decline during the next six months. Only one-third of survey respondents expect sales to increase.

The survey also collected results for the Construction Confidence Index (CCI), which reflects construction contractors’ perceptions of the business environment during a six-month period and prospects for commercial and industrial construction spending growth. The CCI is determined based on survey results. For April, the CCI findings included:

The CCI for sales expectations increased from 38.1 to 41.1 in April.
The CCI for profit margin expectations increased from 36.6 to 39.8.
The CCI for staffing levels increased from 45.2 to 51.4.

Readings above 50 indicate growth, while readings below 50 are unfavorable.

Established in 1950, the ABC is a national construction industry trade association that represents more than 21,000 members. It has 69 chapters across the U.S., including Virginia.