homeWelcome, sign in or click here to subscribe.login




print  email to a friend  reprints add to mydjc  

February 1, 2021

Why 2021 may make contractors nostalgic for 2020

AGC of America


Many of us were eager to see 2020 come to a close and welcome in the new year. There are many reasons to expect 2021 will be a more uplifting year, thanks in large part to the growing availability of coronavirus vaccines, yet there are also reasons why this year could prove challenging for the construction industry. Namely, the industry is facing a lot of difficult economic headwinds at the same time the political climate is taking a turn for the more challenging.

On the economic side, each year we survey our member firms on their expectations for labor and market conditions for the coming business year. According to the results of this 2021 Construction Hiring and Business Outlook, contractors expect the market for most types of construction to shrink in 2021 as the pandemic undermines demand for projects. The net reading — the percentage of respondents who expect the available dollar value of projects to shrink compared to the percentage who expect it to expand — is negative for 13 of the 16 categories of projects included in the survey.

Contractors are most pessimistic about the market for retail construction, which has a net reading of negative 64%. They are similarly concerned about the markets for lodging and private office construction, which both have a net reading of negative 58%; higher education construction, which has a net reading of negative 40%; public buildings, with a net of negative 38%; and K-12 school construction, which has a net reading of negative 27%.

Among the three market segments with a positive net reading, two — warehouse construction and the construction of clinics, testing facilities and medical labs — track closely with the few segments of the economy to benefit from the impacts of the coronavirus.

One reason so many construction firms expect demand for construction to shrink is the high number of projects that have been delayed or canceled. Fifty-nine percent of firms report they had projects scheduled to start in 2020 that have been postponed until 2021 and 44% report they had projects canceled in 2020 that have not been rescheduled. Eighteen percent of firms report that projects scheduled to start between January and June 2021 have been delayed. And 8% report projects scheduled to start in the first half of the year have been canceled.

As a result, few firms expect the industry will recover to pre-pandemic levels any time soon. Only one-third of firms report business has already matched or exceeded year-ago levels, while 12% of firms expect demand to return to pre-pandemic levels within the next six months. More than half — 55% — report they do not expect their firms’ volume to return to pre-pandemic levels for more than six months or are unsure when their business will recover.

The pessimistic outlook means relatively few firms plan to expand their headcount in 2021. Only 35% of firms report they plan to add staff this year. Meanwhile, 24% plan to decrease their headcount this year and 41% expect to make no changes in staff size. This is in marked contrast to 2020, when 80% of contractors reported they planned to expand headcount.

The pandemic is also undermining construction productivity. Contractors have made significant changes to the way they schedule, staff and manage projects as they protect workers and local communities from the spread of the coronavirus. These measures have helped the industry avoid the kind of outbreaks that crippled so many other sectors of the economy. But 64% of contractors report these changes mean projects are taking longer to complete than originally anticipated. And 54% of firms report that the cost of completing projects has been higher than expected.

If our outlook holds true, 2021 will be a challenging year economically for the construction industry. At the same time, this year will also present a number of political challenges for the industry. Notably, within the first several days of his administration, President Biden issued a flurry of executive orders that offer key insights into the new administration’s regulatory posture.

Some of these new orders, including measures to protect the legal status of people covered by the “dreamers” and Temporary Protected Status programs, should help address workforce shortages. Others, such as the termination of the Keystone XL pipeline project, show that when it comes to siding between infrastructure and construction jobs or a progressive agenda, the president sides with the progressives.

One of the first regulations to expect from the Biden administration is an OSHA emergency temporary standard for coronavirus safety, something the president called for in those initial executive orders. On the possible plus side, this new order will give contractors greater certainty about the steps they need to implement to protect workers. The big if, however, is whether the administration will craft common sense safety measures, or use the pretense of coronavirus safety to undermine economic activity by imposing unreasonable requirements, like the use of scarce respirators on job sites.

The new administration is also likely to roll back some of the Trump administration measures that were designed to streamline and accelerate environmental reviews. This includes stopping the prior administration’s efforts to reform the National Environmental Protection Act review process and possibly seeking to rewrite the Waters of the United States regulation. These regulatory rollbacks would very likely extend the federal review process for many types of infrastructure projects and undermine the president’s desire to rapidly rebuild the economy.

As much as we are glad to put 2020 in the rearview mirror, the industry still faces a number of challenges this year. However, our members pay us to help solve problems. That is why we are working hard to convert challenges into opportunities for our members. We will do that by fighting for new infrastructure funding and urging Washington, D.C., officials to backfill depleted state and local construction budgets. We will do that by educating the Biden administration on the economic damage many of its expected new regulations will cost. And we will do that by continuing to provide the kind of programming and resources members need to keep innovating, improving and succeeding.

Stephen Sandherr is CEO of the Associated General Contractors of America.

Other Stories:

Email or user name:
Forgot password? Click here.