Q2 2020 Economic Indicators
In our Economic Indicator report dated March 2020, we stated that Covid-19 had not yet impacted the East Coast construction market, but that it would. Well . . . it did, and I am sure we all felt the impact over the past four months. The four indicators we follow all show the same trends – there will be a decrease in industry volume and industry margin this year and 2021. Two of these indicators, the Architect’s Billing Index (ABI) and the Dodge Momentum Indicator (DMI), are excellent predictors of commercial construction activity 12 months into the future. Both indices lead us to believe that there will be fewer construction opportunities in the 12-18 months ahead.
However, last week I dug a little deeper to see if I could find any broader trends, and one piece I came across was an article where Fortune Magazine surveyed the CEOs of the 2020 Fortune 500 companies. A couple of interesting questions were posed, and the responses help add to the story told by the indicators:
When do you expect capital spending at your company to exceed 2019 levels? Over half of the CEOs felt the return would happen in the next 18 months, and an overwhelming 82.1% think that cap-x spending will exceed 2019 dollars before the end of 2022.
- 2020 – 19.0%
- 2021 – 35.7%
- 2022 – 27.4%
Which country or regions do you see as presenting the best investment opportunity in the next year? With no other country being close, the answer was the United States – 74.3%.
After the pandemic passes, how will the world have changed? One preselected answer was – Nationalism will rise, and global supply chains will become less common. 80% of the CEOs either strongly agreed or agreed to this statement.
Given the information I have today, I prefer to keep an “a glass half full” view and continue to watch and report on the quality and quantity of our backlog as we move through 2020 and 2021. In conversations with our clients, I find most remain optimistic, and as a result, our backlog remains solid. We have seen a slight drop in the number of new opportunities, and that is understandable. As a result, we are also seeing an increase in bidding competition, which will ultimately lead to lower prices for our clients. If your business continues to thrive, now is a great time to get a better “bang-for-your-buck.”