Confidence among U.S. construction industry leaders plunged in response to the economic fallout associated with the coronavirus outbreak, according to the newest Associated Builders and Contractors' Construction Confidence Index, released yesterday. Readings for sales, profit margin and staffing level expectations fell below the threshold of 50 for the first time in the history of the series, signaling contraction along all three metrics.
A survey of ABC members conducted at the end of March found that fewer than 30% of respondents expected sales to increase over the next six months, while less than 20% expected profit margins to increase. More than one in five contractors expect a significant decrease in profit margins, while one in four expect a significant decline in sales volumes.
- Confidence is likely to decline further as construction firms experience the full extent of the COVID-19 crisis, said ABC Chief Economist Anirban Basu.
ABC's index shows how much construction industry sentiment has shifted in just a few weeks. All three CCI metrics in January — before the pandemic reached the U.S. — were well above the 50 point median.
- Sales expectations decreased from 68.3 to 38.1.
- Profit margin expectations decreased from 61.9 to 36.6.
- Staffing levels decreased from 69 to 45.2.
Part of the decline in contractor confidence has to do with the amount that clients have been affected by the crisis, Basu said.
"The finances of key sources of demand for construction services, including commercial real estate investment trusts, state and local governments, retailers and hoteliers, have been savaged by the crisis, translating into fewer funds available to finance construction," he said.
While construction will hold up better in the near-term than retail, restaurants, airlines, auto manufacturing, lodging and a number of other key industries, its recovery is also likely to be less profound than in these other segments absent a federal infrastructure-oriented stimulus package, he added.
The dire outlook among contractors is matched by their colleagues in the architecture sector. The American Institute of Architecture's index looking at demand for design services recorded its largest-ever monthly decrease in March.
Billings at architecture firms plummeted last month as the Architecture Billings Index fell by 20.1 points to a score of 33.3, the largest single-month decline in the index's nearly 25-year history, far surpassing the declines of 9.4 points seen at the start of the 2001 recession and 8.3 points seen at the start of the Great Recession.