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Labor & Material Analysis – Q1 2020

The big question on everyone’s mind these days: Will the Coronavirus Stunt Construction’s Rising Market?

According to the latest results of ENR’s Construction Industry Confidence Index survey, concerns about COVID-19 have had a surprisingly small impact on industry executives’ view of the construction market in the near term. The Index increased four points to 56 in the first quarter of 2020 from the fourth quarter of 2019—a surprising result given that 44% of the surveys came in after the media began heavy coverage of the health crisis.

The survey includes those that answered before Feb. 15, when COVID-19 began to gain traction, and those that answered after that date, totaling a healthy 56 market rating which indicates both groups anticipate continued market growth through the end of 2020.

But the CICI rating for the overall U.S. economy tells a different story. Those responding to the survey before Feb. 15 gave the economy a 57, while those answering after Feb. 15 gave the economy a lower score of 50. The index measures sentiment about the current market, where it will be in the next three to six months and over a 12- to 18-month period. A rating above 50 shows a growing market.

Underlying the market projections is concern about the effect of COVID-19 on the economy and the market.

The financial markets have reacted already with emergency shutdowns and interest cuts only to spook the market rather than stimulate growth.

However, there are some positives to note from a construction standpoint. The virus has stalled many international economies leading to a drop in demand for energy and construction materials. Gas prices are at a twenty-year low and that helps nearly every contractor’s bottom line.

The market as it currently stands, is strong, but external pressures from the impact of COVID-19 and the tumultuous oil market may end the construction boom. It depends on how long the virus crisis lasts. “If we are still feeling the effects of COVID-19 in the summer, I expect we will see a completely different take on market optimism,” says Anirban Basu, CEO of economic consultant Sage Policy Group, Baltimore, and a CFMA adviser.

ENR’s Construction, Wages, & Materials Cost Indexes

Material Forecast

Escalation Indicators

Architecture Billings Index (ABI) indicates that non-residential design services dropped in the 1st quarter of 2020 and will continue into April. This downturn is generating concerns about new design projects.

SLAM Estimating is continuing to recommend an escalation rate of four percent (4%) per year.

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