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Pandemic Impact #4 – Construction Jobs Recovery

4-15-20  How will each of the 4 shutdown impacts affect construction?

An estimate of the amount of construction volume lost between March and April could be on the order of 10% to 12%. We won’t see April construction spending #s until June 1st, but a loss of 10% equates to about $10-$12 billion work stopped in a single month.

Associated General Contractors of America reported 40% of construction firms had furloughed or terminated workers by April 10.

  • 30% of firms said they had been asked by government officials to shut down jobs.
  • 53% of respondents said their projects have been delayed by owners.
  • 7% said owners had canceled their projects.

NAHB 4-15-20 Builder Confidence Posts Historic Decline

If they stop buying them, next they stop building them. I’m forecasting temp shut down of 15% of residential backlog and a 10% drop in new starts.

U.S. manufacturing output posts largest drop since 1946

Think of all the manufactured products that go into construction of a new home: Doors, windows, roofing, siding, wallboard, lighting, heating, plumbing fixtures, wire, pipe, cabinets, appliances, etc. How many of these will be in short supply leading to delays in completing new or restarted work?

Pandemic Construction Forecasting needs to account for 4 types of impacts.

  • 1 Work stoppage – stay at home, how deep is the work stoppage
  • 2 Work restart – % restart/month, how slow does work restart
  • 3 Work canceled – some work never restarts, how severe
  • 4 New Starts – future capital spending plans canceled, how cautious

Spend Sector monthly 2018-2021 4-18-20 recession

The initial shutdown cumulative total spending lowest point is in April-May 2020 due to the abrupt shut down. When work rebounds, it restarts gradually over a period of months. Some of the work that shut down will not restart. Also, reduced new starts lowers the cumulative total spending again in the first half of 2021, where residential spending hits it’s low point. Here’s the jobs impact of each.

  • 1 Work stoppage – stay at home, how deep is the work stoppage

From March 15th to April 15th, it is estimated that about 10% to 12% of all construction work stopped, or about $10-$12 billion work stopped in a single month. This work remains on hold as we assess when it is appropriate to reopen the economy. A $10 billion/month work stoppage shuts down 600,000 jobs/month from Mar 15 to Apr 30, perhaps longer.

  • 2 Work restart – % restart/month, how slow does work restart

For a number of reasons, all work will not restart immediately. I’ve modeled the work to restart over 6 months. If only 33% of the stopped work resumes in May, only 33% or 200,000 of the 600,000 lost jobs return, 400,000 remain shut down. If each month 100,000 more jobs restart, the net lost time over 6 months is 1,800,000 man-months or an average of 300,000 jobs for 6 months.

  • 3 Work canceled – some work never restarts, how severe

It’s possible some work will be put on hold for a long time or outright canceled. If 10% of all work that was forced to shut down does not restart, then about 1.5% of all work in backlog disappears. There was $1.3 trillion in starting backlog leading into 2020. A 1.5% decline in backlog amounts to almost $20 billion in work that might not restart. That workload would have taken place over the next 20-30 months, so it is equivalent to about $1 billion a month. Jobs lost would equate to 4000 to 5000 jobs for 20 to 30 months.

  • 4 New Starts – future capital spending plans canceled, how cautious

Dodge is now forecasting a 10% to 15% decline in new construction starts in 2020. (Prior to the pandemic, Dodge was forecasting a 4% drop in new 2020 starts). If new starts drop by 10%, that equates to a decline of about $130 billion in future work. That would be spread out over the next 3 years or so. On average that reduces jobs by about 20,000, but that loss lasts for the next 3 years.

 

Construction spending varies from month to month, but total annual rate of spending will not return to the Jan-Feb 2020 level until at least 2023. Construction jobs may not reach the Feb 2020 level again until 2024.

See also Pandemic Impacts – Part 3 – Jobs Lost, Inflationary Cost


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