Construction Industry Economic Influences

Congratulations on surviving, so far, this unprecedented recession.

According to Stephen Sandherr, CEO of Associated General Contractors of America, contractors have focused on cutting costs and increasing efficiency.

They have “learned how to do more with less,” he said.

How do firms continue through lean times armed with their hard-earned practice of lessened resources?

By recognizing how important economic influences, ranging from global to local, influence businesses in the construction industry. Traditionally, the industry has always been analyzed by the components of construction costs and materials, labor and mark-ups. During the past decade’s massive instability an additional component, that of economic influences, has been added.

Unlike trying to decipher the widely contradicting predictions of economic recovery, understanding the economic influences for the remainder of 2012 and into 2013 provides a clearer view of how a firm’s resources are best utilized.

Current economic components influencing construction are:

Improving GCP and personal income

• Rising vacancies for office/retail/hotels
• Serious spot credit access problems- muni bond market is up and bank lending is still down
• State and local tax shortfalls with deeper spending cuts
• Federal ARRA projects’ funding slows

As the economy recovers with the uncertainty of materials’ prices it is likely contractors will start including larger contingency/reserve factors in the bids.

Beyond 2012, domestic materials’ costs are expected to increase 2% - 4% with a 3%-5% overall bump on all materials prices. Other issues to be considered are fast track schedules and project delivery like IPD, and CMAR, and the continuing technical education of an aging workforce
Positive indications are on the horizon with airports, medical, and school bonds among other authorized “cloud” construction projects waiting for fast approaching funding.

In planning for the future the biggest factor to accept is that few practices or financing from pre-2007 still exist. The new normal, born of hardships, compromise, and resilience, is leaner and smarter.

This article was written for Sierra West Group