2020 Marcum National Construction Survey

BY ANIRBAN BASU | MARCUM LLP A Tale of Two Economies

took hold, including in New York, New Jersey, Massachusetts, Pennsylvania, and California. An unprecedented decline in energy prices during the early stages of the crisis also impacted the pace of investment, further dampening construction activity. Accordingly, construction lost 975,000 jobs in April, the worst single monthly total on record. ONE SURVEY BECOMES TWO While the economy was rapidly transitioning from boom to bust in early February, Marcum was busily conducting its first annual National Construction Survey. The survey could not have been better timed, since it provided us with a picture of how the industry was being impacted by the unfolding coronavirus crisis in real-time. Some responses came before the pandemic began to unravel the economy, and some responses came during the early stages of the crisis. Thus, one survey became two. As an example of how quickly economic conditions were changing at the time, pre-March 15 respondents indicated with near-unanimity that their access to funding had either improved or remained stable. Responses arriving after March 15 indicated that already the industry’s ability to access financing had been negatively impacted by the emerging public health and economic crisis, though the overall trend was still not unduly problematic during the crisis’ initial phase.

At some level, it’s pretty simple. The pre-COVID-19 economy was blissful for many contractors. A combination of strong job growth, technology-induced transformation, healthier state and local government finances, rising incomes, consumer confidence, low inflation, and minuscule interest rates propelled construction spending higher. The year began in stunningly fine fashion. In January, the nation added 214,000 net new jobs, remarkable given how low unemployment had become (3.5%, a 50-year low) and how much difficulty employers were experiencing filling unfilled jobs. Contractors routinely complained about a dearth of skilled craftspeople, and noted shortages of carpenters, HVAC professionals, roofers, glaziers, electricians, superintendents and estimators. In February, America added another 251,000 net new jobs according to available estimates. The post-COVID-19 economy is the mirror opposite. The second quarter of 2020 is likely to prove the worst quarter of our economic lives. By February, the nation was already in recession even though it began the month with momentum. The last three weeks of March were so bad for the economy that U.S. GDP declined 4.8% for the quarter. The nation lost 881,000 jobs in March before losing 20.5 million jobs in April. Many forecasters expect America’s gross domestic product to decline in the range of 40% on an annualized basis when all is said and done, meaning that for a time the U.S. is facing depression-like conditions. Unemployment will likely peak well above 20%. Often, construction is spared during the early stages of a broader economic downturn due to a combination of ongoing work and backlog. That didn’t happen this time. A number of communities declared construction non-essential as social distancing directives

CONTRACTORS HAVE CAUSE FOR CONCERN

While the current recession is unlike any other in history, looking to the past offers a plausible glimpse into what’s possibly in store for the U.S. construction industry. The last recession officially began in December 2007 and ended in June 2009, a harrowing span of 18 months.

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