First Quarter Construction Economics: The Good, The Bad, and the Ugly
Anirban Basu, Chief Construction Economist, Marcum LLP
Issue 31 – First Quarter 2020
The Marcum Commercial Construction Index for the first quarter of 2020 reports an industry suffering the adverse effects of COVID-19. Construction employment fell by nearly one million jobs from March to April 2020, a decrease of 12.8 percent. The industry’s unemployment rate increased from 6.9 percent in March to 16.6 percent in April, the highest level since early 2012.
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The great debate has been whether the combination of pre-existing backlog and the classification of construction as an essential activity in much of the nation would help shield the sector from the downturn resulting from the coronavirus crisis. Based on March construction spending data, industry activity largely proceeded apace, with recessionary forces impeding broader industry activity to only a limited extent.
The second quarter of 2020 stands to be the worst economic quarter of our lives. Economists at JPMorgan predict that GDP will decline during the second quarter by 40 percent on an annualized basis. Other forecasters expect a decline closer to 30 percent, but in any case, the impacts are devastating for businesses, employees, government finances, and the psyche of various economic actors. GDP declined 4.8 percent on an annualized basis during the year’s initial quarter despite the fact that January and February were periods of solid economic performance. The GDP decline primarily reflects the economic weakness that characterized March’s final three weeks.
Typically, construction is protected in the early months of a recession, as months of backlog acquired over prior periods allow contractors to continue working even as the broader economy slows down. That was not the case this time around, however. Though some states allowed construction firms to continue working by deeming them “essential,” the economic shutdown has managed to quickly impact the industry. Associated Builders and Contractors Construction Backlog Indicator fell to 7.8 months in April, the lowest reading since the third quarter of 2012.