“Though nonresidential construction spending has continued to recede for the better part of a year, the growing consensus is that the next six months will be a period of improvement,” said Associated Builders and Contractors’ Chief Economist Anirban Basu.
An improving economy in 2021 is leading to an optimistic output for the rest of the year. That’s a big change from just a few months ago when the outlook was dour.
Still, there is a lot of uncertainty in the construction industry as firms try to minimize exposure and risk. While nobody could have anticipated the impact of the pandemic or how it would affect the construction industry, it is today’s reality. While there’s more hope with the rollout of a vaccine, there are delays in vaccine production, worries over new variants, and investor concerns about making capital available.
Managing Cash Flow
For private contractors, cash management will be of chief concern. Smaller contractors will want to take advantage of the third round of the Paycheck Protection Program (PPP) program. Contactors can apply from February 24th through March 9th. Additional funding is available for those in low- or moderate-income areas as well. While these are loans granted through the Small Business Administration (SBA), construction firms can have the loans 100% forgiven if they follow the guidelines.
When managing cash, private contractors should maintain close relationships with advisors, such as lawyers, accountants, bankers, or insurance agents as the business environment continues to evolve.
The near-term outlook for nonresidential construction is modest. After a decline of 33% in Q2 2020 and Q3 2020, there are signs of life. Q4 was up 3% on an annualized basis.
“The anticipation is that the second half of the year will be spectacular for the U.S. economy from a growth perspective, which will help lift industry fortunes as 2022 approaches,” said Basu.
Managing Project Interruptions
Private contractors struggled in 2020 due to constant interruptions to project work. Whether it was because of the pandemic, supply chain disruptions, or price shock for commodities, many projects got put on pause — which led to cash flow problems. The rollout of COVID vaccines should ease interruptions moving forward as projects get restarted.
For private firms, it’s time to reevaluate the landscape. With fewer opportunities available, firms must be agile to take advantage of project work that is available now while waiting for bigger opportunities to emerge. This may mean taking on work outside of your normal expertise, such as retrofitting or remodeling buildings rather than building from the ground up.
Reinvention, to stay relevant until business picks up, will be essential for survival. Risk management will also be crucial as the economy improves. Firms should make sure they are doing their due diligence on partners and suppliers to avoid taking on unsustainable risks.
Optimism in the Second Half of 2021
Still, after surviving often brutal conditions in 2020, the second half of 2021 appears to be poised for a resurgence in the construction industry as pent-up demand and more free-flowing capital appear on the horizon. Private contractors have reason to think they can put the past behind them and be optimistic for the future.