We might start by looking at the current outlook for new starts, backlog, and spending.
Construction starts increased by 4% in 2018, after increasing by 10% the year before. The number of new starts in 2019 is up 4%, including revisions. Starts are expected to fall by 4% in 2020. The current backlog has increased by 30% in the last four years, reaching an all-time high. Despite the fact that spending is expected to rise only 4% each year over the next two years, it is at an all-time high.
In 2018, the number of residential construction starts reached an all-time high. Starts in 2019 are flat year over year, but have been flat or declining since mid-2018. In 2020, spending is expected to increase by 5%, then decline by 1% in 2021.
For the four years 2017-2020, the starting backlog for nonresidential buildings climbed by 10% per year. Since mid-2018, starts have been flat or slightly declining. Starts in 2019 are down 9% from 2018. In 2020 and 2021, spending is expected to increase by 3%.
For the three years 2018-2020, the infrastructure starting backlog has grown at a rate of 15% per year. Spending is expected to increase by 6% in 2020 and 8% in 2021.
It’s crucial to know when spending from the backlog occurs. According to average cash flow curves for nonresidential projects, roughly 15% -20% of spending from new starts occurs in the first year, and about 40% -50 percent occurs the second year. Backlog accounts for 80% of all nonresidential spending in any given year. In the first year, a 10% reduction in new starts has just a 1.5 percent to 2% impact on total spending. Spending would fall by 4% to 5% the next year.
Residential spending is much more reliant on new construction than it is on backlog. Backlog accounts for just approximately 30% of residential spending, whereas new starts account for 70%. If new residential construction falls by 10%, total spending will fall by 7% in that year.
In the event of a recession, new construction starts would be drastically limited. Although some projects will be canceled or postponed in the middle of their construction, the majority of those that are already underway will be completed. The majority of the reduction is due to a decrease in new starters.
Residential starts fell 70% from $400 billion to $110 billion during the Great Recession, from 2005 to 2009.
Between 2008 and 2010, the number of nonresidential building starts fell by 35%. In 2009, non-building starts declined by only 6%. From $1.160 trillion in 2006 to $788 billion in 2011, total spending fell by 30%.
Whatever causes a building recession, in this case a global pandemic, the current enormous backlog of work will do everything it can to dampen its impact.
No analyst had predicted a significant drop in new construction starts in the coming years. Some predicted a slight slowdown at worst. Data up until today seemed to point to a mild slowdown.
Although Dodge predicts a 6% drop in the dollar value of home starts in 2020, the number of units recorded by the US Census in Q4 2019 is at a post-recession high, lowering the likelihood of such a drop.
It’s unclear how much current or new work will be canceled. This research cuts new construction starts by 20% in 2020 and 10% in 2021 from the baseline to gain a sense of how a recession would affect construction investment. That’s about normal for what happened during the Great Recession, but it was much higher in residential and much lower in non-building infrastructure at the time. Except for the Great Recession, only once in the last 20 years have new construction starts dropped more than 5% in any sector in a single year.
As a result, there would be 20% less work to bid on in 2020 and 10% less in 2021 compared to the baseline prediction. However, neither spending nor revenues would react in this way. The impact on spending, or revenues, is determined by the backlog and spending schedule curves.
Here’s how the spending graphs have changed as a result. The predicted spending to the right of the dateline is the only thing that varies.
Residential construction spending would fall by 14% in 2020 and subsequently by 13% in 2021, compared to the baseline scenario. Residential spending is significantly more reliant on fresh beginnings within the year than on backlog. As a result, residential spending falls faster than all other types of work.
Nonresidential Buildings spending is 4% lower in 2020 than it would have been in the baseline scenario, but then reduces 12% in 2021 and 10% in 2022. Because the backlog in this sector is substantial going into 2020, even though spending is 4 percent lower than the baseline, 2020 nevertheless sees a 1.5 percent increase in spending. 2021 sees an 8% drop, while 2022 sees a 1% increase.
Non-building infrastructure investment is 3% lower in 2020 than it would have been under the baseline scenario, but then reduces 9% in 2021 and 10% in 2022. Non-building infrastructure has so much work on the books that spending is expected to increase by 6% in 2020 and 1% in 2021. In 2022, it will decrease by 2%.
Most residential investment comes from new starts within the year, thus the largest declines in 2020 are in that sector; however, the strength of the backlog going into 2020 pushes most of the declines out to 2021 and 2022.
Total spending would fall from $1.365 trillion to $1.260 trillion in 2020, compared to the current expectation of $1.365 trillion. Instead of $1,370 trillion in baseline spending in 2021 and 2022, it would fall to $1.230 trillion, the same amount as in 2016. The Great Recession’s losses, which totaled about $400 billion, pushed construction investment growth back 12 years.
Boston was not alone in shutting down non-essential construction projects; New York and California followed suit. Construction spending in Boston is over $20 billion each year, whereas in New York and California, it is above $280 billion. Assume that all construction in California, New York, and Boston is halted for a month. Let’s say it accounts for 80% of all construction. In less than a month, $20 billion worth of work will be halted.
Temporary shutdowns differ from a reduction in fresh starts in that work shut down is postponed. In 2020, total spending will be reduced in that month, but the entire spending schedule will be shifted out by a number of months. Some of the work will resume in 2020, while others will most certainly be pushed to 2021 or later, but all of the delayed work will be completed eventually. If 20% of all building in the United States stopped for a month, $25 billion worth of work would be delayed for a month. If 20% of all new building starts in the United States in 2020 are canceled, the future workload will be reduced by $250 billion over the next three years.
The magnitude of spending cuts would have an impact on the labor market. Because employment losses of this level do not always coincide with volume losses, we are unlikely to see a staff decrease of this magnitude in 2020. However, spending cuts in 2021 and 2022 could result in the loss of 500,000 to 750,000 employment. We lost 2.3 million jobs over the duration of the Great Recession.
Is construction beneficial during a downturn?
A job search during the start of a recession, or even a modest economic slump, is never a good idea. Although the construction business is one that suffers the most when times are tough, that doesn’t make it a bad career option in general. When you see professionals who have been doing this for 30 or 40 years, you know they’ve persevered through difficult economic times. It’s logical to believe you can as well. If you’re concerned that a recession would force you to change careers, there are reasons to be optimistic about this one. Here are a few things to think about when you make your decision.
What industries are the hardest hit by the recession?
8 industries with the best job security during a downturn
- Health-care services. People get sick and require medical care regardless of the state of the economy, thus the demand for health-care occupations is fairly stable, even during a downturn.
Is the building business immune to recession?
A recession-proof industry is one that is vital to society’s long-term viability, regardless of the crisis. This can manifest itself in a variety of ways, including:
- Industries that provide vital item and person maintenance and repair services. These industries include auto mechanics and healthcare services, for example.
- Industries that provide essential commodities. This category includes grocery stores, medicine stores, and gas stations.
- Industries that provide low-cost products. Fast food restaurants and huge box retailers are two examples.
- Industries involved in the provision of public works services. Electricity and gas firms are included in this category.
- Industries that are anti-cyclical. These are the businesses that prosper when the rest of the world is in a slump. This category includes debt collectors and bankruptcy attorneys.
Even during the worst recessions, construction continues, although it is not considered recession-proof. When the next recession hits, it will be critical for construction enterprises to strategize for success. Let’s look at how you may prepare your firm for a crisis so that you can stay in business for a long time.
In a recession, which industries grow?
Industries That Are Critical Healthcare, food, consumer staples, and basic transportation are examples of generally inelastic industries that can thrive during economic downturns.
How can a construction company weather the storm?
6 Ways to Make Your Construction Company Recession-Proof
- Make sure you have cash on hand. It’s a good idea to save enough money to get your firm through a bad patch.
Pursue projects that effectively use available manpower and equipment
Making the most of your available resources will help you maintain project profit margins high, which is exactly what you need when the flow of work stops.
If your construction company decides to take on a project that is too big, it may face equipment and staff shortages. A project that is too small, on the other hand, would not be an efficient use of the same resources, resulting in reduced profit margins.
Examining jobs you’ve performed over the last several years and noting which ones were the most successful is one technique to discover the most efficient use of your resources. Pay attention to their scope, timeline, and budget, and then utilize this information to design (and pursue) ideal projects for your company.
Focus on attracting employment that meet this “ideal project” criteria during a recession. These are the initiatives with the highest profit potential.
In a recession, who suffers the most?
The retail, restaurant, and hotel industries aren’t the only ones that suffer during a recession. During periods like these, industries like automotive, oil and gas, sports, real estate, and many more face significant decreases. Although the recession brought on by the coronavirus epidemic is unusual, many of these businesses have had difficulties in the past.
However, as we already stated, not all is doom and gloom. Certain industries have done a good job of riding the wave and adapting.
Medical professional
Within the medical field, there are numerous vocations and specialties. This group includes Registered Nurses (RNs), pharmacists, physicians, surgeons, paramedics, dentists, dental assistants, and even veterinarians. People and animals become ill regardless of the economy, thus they will always require the assistance of trained professionals.
Specialized care, therapy, and counseling
Consider elder care, physical therapists, occupational therapy, substance-abuse counseling, chiropractic treatment, home health aides, mental health specialists, social workers, and other professionals who operate in this field. People place a high importance on their health. They will spend money on services that will help them to be productive while also being pain-free. Some of these services are covered by insurance, encouraging consumers to use them even when they are short on cash.
Law enforcement officers
The specific link between crime and economic cycles is difficult to pin down. Some crimes predict a downturn, while others coincide with it, and still others show no link at all. Communities prefer to invest in physical safety for local companies and citizens in any economic scenario, which means that police officers and the professionals who support them are in high demand even during a downturn.
Public utility services
During economic downturns, electric, water, sewage, waste, trash, and recycling services all continue to operate. Utility personnel, after all, are essential to ensuring public order and health. Surprisingly, consultants that serve those utilities appear to get the same benefit. Many cities, for example, are obligated to undertake annual audits of their trash-collection companies. Even in a down economy, consulting businesses that undertake such audits will have work to do.
Financial services
The importance of money mobility explains why financial specialists are always in demand. Accountants, auditors, actuaries, claims adjusters, tax preparers, and insurance underwriters are just a few of the employment available in the financial services industry. Many jobs necessitate professional certificates such as Enrolled Agent (EA), Certified Public Accountant (CPA), or Certified Financial Analyst (CFA) (Chartered Financial Analyst).
Education services
Economic booms come and go, but putting money for the future is always a good idea. Regardless of the economy, jobs in primary education, secondary school, higher education, special education, and adult education are in high demand. Those interested in following this path should be aware that the method education is given is changing. New types of distant and on-demand education are becoming more relevant in addition to traditional classroom educators. As a result, a teaching career might be flexible in terms of both location and delivery manner.
Looking for a job that is recession-proof? A skilled resume writer can reframe your experience in order to help you advance in your job.
What happens to jobs during a downturn?
When firms fail, their assets are sold to other businesses, and their former employees are rehired by other competitive enterprises, as is the regular course of business. Because numerous businesses across various industries and markets collapse at the same time during a recession, the number of unemployed workers looking for new opportunities rises quickly. The amount of labor available for immediate hire increases, but business need for new employees decreases. Economists would expect such an increase in supply and drop in demand to result in a lower price (in this example the average pay) but not necessarily a lower total number of jobs once the price adjusts in a perfect, frictionless operating market.
Which businesses prospered during the Great Depression?
Chrysler responded to the financial crisis by slashing costs, increasing economy, and improving passenger comfort in its vehicles. While sales of higher-priced vehicles fell, those of Chrysler’s lower-cost Plymouth brand soared. According to Automotive News, Chrysler’s market share increased from 9% in 1929 to 24% in 1933, surpassing Ford as America’s second largest automobile manufacturer.
During the Great Depression, the following Americans benefited from clever investments, lucky timing, and entrepreneurial vision.