2020 vision: Outlook for construction industry looks rosy … for now
From all corners of the West Michigan construction industry, the outlook for the next 12-18 months remains strong, but it is not without a healthy dose of caution.
I was recently in a discussion with executives from several large specialty trade contractors and we all shared a similar experience in the first half of 2019. While the first part of the year started slower for project awards and project starts, all of the companies represented, including ours, are close to filling our respective backlogs through 2020.
Supporting this anecdotal evidence of a strong construction market is the recently release of the Commercial Construction Index (CCI), compiled by USG Corp. and the U.S. Chamber of Commerce. After lower scores in overall backlog and confidence scores were reported at the beginning of the year, the 2nd quarter report showed a strong rebound. Scores for contractor backlog and contractor confidence to full available capacity both are up. The report cites that a continued shortage in available labor is a driving factor for the continued demands on the construction industry. The full CCI report can be found here.
The report did, however, share that a large number of contractors expect their revenues to stay about the same as last year or increase only slightly. A similar sentiment also was reported by the group of trade executives that I recently spoke with. Inefficiency on project sites, unrealistic schedule expectations and a less experienced workforce all were cited as reasons for a potential plateau in performance.
For construction buyers, this data means that getting your project completed will continue to be more difficult than in the early part of the decade. To access the best workers and companies in the market, it is important to have well planned and realistic expectations of schedule and budget. In general, contractors have their pick of the projects that they want to pursue, and if the data in the CCI report is correct, this trend will continue well into 2020.
The good news for construction buyers is that while prices are high for construction, they do seem to have stabilized. Even with continued international trade instability, the industry generally is better at forecasting construction costs than it was a few years ago.
For contractors experiencing a good economic climate, I encourage you to take this time to invest in your team. Being busy should not be an excuse to cut back on training, education and the introduction of programs and benefits that support work/life balance. Stress and mental health all can be negatively affected when we are operating at or beyond capacity. In some cases, the best thing that we as leaders can do for our people is just be honest with our clients and decline a project that we can’t execute.
Make sure that you also are making smart hires. Setting the bar high for new additions to your workforce will save you from costly mistakes or safety accidents while also making your current workforce more sustainable should there be an economic slowdown. A good team will naturally be more resilient should our current economic conditions continue or start to slow down.
I love the work ethic and the attitude of the businesses in West Michigan. It is because of our hard-working nature and innovative spirit that West Michigan businesses continue to expand and support the construction industry. All signs point to a strong 2020 even if we have just hit the halfway point of 2019. To all those working hard each day to build West Michigan, may you stay busy and stay safe!