It’s been a tough year. Every industry has had challenges, some unique and some universal. The pandemic isn’t over, so without a crystal ball, no one knows exactly how this will play out long-term. But what we can do is take a look at where the construction industry is at, and forecast projections for where we are heading so your business is better prepared to rise to the occasion.

While New York construction was deemed an essential service early on which helped many preserve employment, the field has yet to experience the aftershock of the pandemic – and that’s what is keeping industry experts up at night. Maybe one (or many) of your own projects is being pushed back, delayed, or canceled. If that’s the case, know you are not alone. The Associated Builders and Contractors recently reported that its Construction Backlog Indicator fell to 7.5 months in September, a decline of 0.5 months from August’s reading. Comparatively, backlog is 1.5 months lower than it was in September 2019. Contractors expect shrinking profit margins for the seventh consecutive month. This data is reflective across all markets and regions, but has been notably most pronounced in the West, likely due to the various economic and environmental factors facing the state of California. The commercial and institutional spaces, as well as infrastructure are being hit hardest by rapid backlog decline. Backlog is higher in the heavy industrial category, a segment that’s bouncing back thanks to a combination of inventory rebuilding, surging e-commerce demand and production reshoring stateside.

There are a lot of factors at play, contributing to high competition and decreased overall profit. The industry is experiencing fewer bidding opportunities, rising materials costs, tighter lending standards, weakened commercial real estate fundamentals, diminished state and local government financial health, and persistent difficulty in identifying and hiring sufficiently skilled and motivated workers. More than 75% of contractors say they expect profit margins to flat line or decline over the next six months. Now more than ever before, it’s important to reassess your overhead costs, and make timely, tough decisions regarding personnel and expenses. In less extreme financial times, you may have been able to put off making big cuts or drastic financial planning decisions, but today these choices can mean the difference between staying open and shuttering your doors indefinitely. It’s also important to be open to pivoting to where the work is, if your team has experience and can transfer your skillset to applicable areas of construction.

There is some positive news to report. Despite ongoing economic uncertainty as the pandemic lingers, staffing levels are expected to grow over the next six months as contractors strive to hold onto their workforce. Following the COVID-19 outbreak, many contractors have adopted new technology, a welcome update that is sure to advance companies for years. A majority of contractors surveyed (about 70%) do not expect the construction industry to stabilize until at least 2021 and nearly every construction market has a weaker spending outlook in 2021 than in 2020, because approximately 50% of spending in 2021 is generated from 2020 starts and 2020 starts are down. While instability is never fun for a business to navigate, now is the time to lean on the strong relationships you have built with your bank. Yes, hard times ahead may mean a credit line deduction, but banks have a history of working with clients who have established relationships. This will enable you to ride this wave and emerge successful. We will continue to monitor the industry and keep you updated with relevant and timely insights. As always, to discuss your financial future, please do not hesitate to contact one of our dedicated RBT professionals.