AIA index points to major downturn in commercial construction | Dump Trucks Charlotte NC
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Associated Builders and Contractors Chief Economist Anirban Basu also sees a steep decline in activity for U.S. commercial builders. He told Construction Dive he believes it will occur in three phases.
Phase one includes the current impact of social distancing directives and other CDC recommendations on construction activity, as well as shutdown orders in Boston, Pennsylvania and California.
Phase two will be the result of the downturn of the U.S. economy, which will bring the deepest recession since the Great Depression, he said.
"Construction activity tends to lag the broader economy by 12 to 18 months, so that weakness will eventually catch up with the construction sector," he said.
ABC's latest Construction Backlog Indicator released earlier this week suggests that backlog is already under pressure, falling 7.7% to 8.2 months in February. In addition, its February Construction Confidence Index released today revealed that contractors' expectations for sales, profit margins and staffing levels fell below the threshold of 50 for the first time in the history of the series.
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The AIA data indicates that phase two could begin sooner than expected, with many projects being canceled in large numbers and many project owners likely invoking force majeure clauses in contracts in order to avoid the costs of cancellation that normally accompany such decisions, Basu said.
Phase three involves a longer-term malaise in construction activity as empty storefronts and office suites remain pervasive for years to come.
In an AIA survey of members released late last month that asked firms to project their losses through the end of the second quarter of 2020, 94% of responding firms indicated that they expect a decline in revenue during that time, with more than one-third anticipating losses of 25% or more. On average, architecture firms now expect revenue losses of 17% over the next three months.