According to Dodge Data & Analytics chief economist, Richard Branch, the construction industry market research and forecasting firm expects the novel coronavirus to have less of an impact on the economy than first anticipated, while also reporting “a growing realization that the U.S. economy is in recession.”
Please note—Branch warns these forecasts have a large margin of error as the full extent of the pandemic has yet to be felt (as of the date of publication of this issue on March 27, 2020) and forecasts are adjusted as more information becomes available.
The company expects to see a decline in U.S. gross domestic product (GDP) throughout 2020 (dipping deepest in the second quarter), only seeing a return to growth in the final months of the year. An overall decline of 0.5% for the entire year is expected.
Specifically, Dodge predicts a slight decline to –0.1% in GDP in the first quarter, followed by –6.3% in the second quarter, as the economic impacts of the virus are fully felt. (According to Dodge, the deepest quarterly decline during the Great Recession was an annualized –8.4% in the fourth quarter of 2008.)
As the year continues, improvement is expected if COVID-19 containment and mitigation plans are working and “some aspects of life return to normal.” Dodge expects GDP at –1.1% in the third quarter, end- ing with slight growth of 1.5% in Q4.
For the construction industry specifically, the commercial sector has fared better than the institutional in the initial weeks of the COVID-19 pandemic.
According to Branch, U.S. commercial projects survived the first week of major economic impact (March 15–21), possibly as a result of more flexibility for teleworking and a strong economy protecting the construction industry from the full impact of the pandemic as companies were still able to enter projects into the planning phases.
In particular, the commercial sector saw little to no difference between the dollar value of projects entered into planning during the first three weeks of March compared to the first three weeks of February. However, according to Branch, the commercial sector is likely more vulnerable to an economic downturn as the hotel and retail sectors are likely going to be hit hard by COVID-19 mitigation strategies.
Institutional construction has seen a much more noticeable impact from the effects of COVID-19. The dollar value of institutional construction projects entering the planning phase fell each successive week in March. This trend is expected to continue as state and local governments feel the pain of reduced tax revenue and increased use of social safety nets as a result of unemployed workers.