- The Dodge Momentum Index, Associated Builders and Contractors' Construction Backlog Indicator and nonresidential construction employment numbers tracked by the Associated General Contractors of America all provided a bleak outlook for construction’s prospects this week.
- The Dodge Momentum Index was off 2.6% in November, while ABC said its Construction Backlog Indicator plunged by a half month during the same period. Meanwhile, the AGC noted that nonresidential construction employment, even though it added 11,900 jobs in November, still only recouped 58% of the jobs it lost during the initial phase of the pandemic.
- “It's clear to us that the boost provided to the economy from the CARES Act has faded, and economic growth has slowed as a result,” said Richard Branch, Dodge Data & Analytics' chief economist, in a short video that accompanied the firm’s news release. “We're now facing down the next wave of COVID infections. Add to that the uncertainty over the prospect for further stimulus coming from the federal government, and we think it's going to be a tough slog for the economy, as well as for construction, to manage any significant forward traction over the next three to six months.”
Taken together, those data points signal lean times in construction for the foreseeable future. The bleak numbers come as both hospitalizations and deaths across the U.S. from COVID-19 reached their highest points of the pandemic so far, just as construction enters what is traditionally its slowest period of the year.
What’s particularly concerning about the construction data now, however, even as promising vaccine developments have provided hope that there will be an end to the pandemic, is its forward-looking nature.
Dodge said its Momentum Index tracks the initial reports of nonresidential building projects in the planning stages, and has been shown to lead construction spending for nonresidential buildings by a full year.
“So in essence, it’s a leading indicator,” Branch said. “The total DMI is now about 13% below where it was in February, just prior to the pandemic.”
The ABC’s Backlog Indicator is similarly a harbinger of future work, and just as discouraging. A measure of the number of projects that contractors have signed, but haven’t started working on, it provides an insight into construction firms’ job pipelines. Taken with the further dip in November, it is now 1.7 months lower than it was in November 2019, a 19% decline.
“When the pandemic first struck down the economic expansion during the February-April timeframe, construction emerged as a relative bulwark of stability,” said Anirban Basu, ABC’s chief economist, in a news release. “But the protective shields that helped sustain industry performance have begun to weaken.
“Many projects have been postponed, while others have been canceled,” Basu added. “New bidding opportunities have become rarer, helping to push backlog lower. The prospect of additional lockdowns hasn’t helped, with many investors remaining too uncertain to bring the next generation of commercial projects to market. Lending conditions have tightened. Many segments have been battered financially, including healthcare, certain manufacturing sectors and lodging. A number of contractors also report project delivery interruptions as workers become infected.”
Even the silver lining of the numbers released this week — the overall gain in nonresidential construction jobs in November — had a sharper edge to it. Ken Simonson, AGC’s chief economist, pointed out in his weekly Data Digest that while residential construction has rebounded significantly since the start of the pandemic, nonresidential activity hasn’t fared as well.
“There were similar employment declines between February and April in residential construction (-15%) and nonresidential construction by (-13%) but a growing disparity since then,” Simonson wrote. “From April to November residential construction increased 17% and recovered 96% of the employment lost from February to April. Nonresidential employment increased 9% and recouped only 58% of lost jobs. The industry’s unemployment rate in November was 7.3%, not seasonally adjusted, with 732,000 former construction workers idled, compared with 4.4% and 428,000 workers, respectively, in October 2019.”