It is early September. The cool mornings and slight tint of colors in trees illustrate the beginning of change. It is a timely and expected change, transitioning summer to fall. The annual upstate New York tradition also means contractors are busy wrapping up projects over the next few months in preparation for the expected change to winter.
Unexpected change is inevitable, but how we as a society and construction industry executives react to uncertain changes can vary. Although the country is still in the midst of a pandemic, construction industry employers have adapted to new “norms” both in the office and on the construction job site. What are the new “norms” when bidding a project? What lessons have been learned about how to bid on projects during a pandemic, and for how long will these new “norms” be in place? Have contractors and project owners alike done all they can do to mitigate risk and liability exposures, and are those measures adequate protections in the event of unexpected issues?
Over the decades, the construction industry has endured many eras of uncertainty and recessions. The industry has many wonderful success stories of second and third generation construction companies which have survived similar times. Lessons have been learned and new best practices have been adopted during each occurrence, so I suspect the current economic and industry turmoil resulting from COVID-19 is no different – except for those who have no experience.
History is a great teacher of delivering the most difficult lessons. Some examples of recessions in the United States that have led to eventual recoveries and survival of construction contractors include:
The Asian Flu Pandemic lasted from the summer of 1957 through April of 1958. While the coronavirus originated in China, the Asian Flu originated in Hong Kong. It ripped through India and Europe and eventually made its way to the United States. It killed over 1 million people world-wide and initiated a global recession. In an effort to end the recession, then President Dwight D. Eisenhower convinced congress to pass a stimulus package addressing national infrastructure needs in the Federal Aid Highway Act. Notice any similarities today?
The Oil Embargo from 1973-1975 resulted in the longest U.S. economic recession since the Great Depression from 1929-1933. Unemployment reached approximately 8.8% and gas prices soared, increasing the cost of consumer goods and services. In an effort to end the recession, the Federal Reserve significantly lowered interest rates, which would later lead to high inflation in the late 1970s and early 1980s. Sound familiar?
From July 1981 to November 1982, the U.S. endured yet another oil-related recession when the Iranian Revolution ended and the new regime exported oil at very low prices, keeping gas prices in the U.S. high. With inflation in the U.S. at an all-time high, the Federal Reserve increased interest rates to 21.5% which then lowered the inflation rate, however, the economy declined by 3.6% over the next 16 months while unemployment soared to over 10%. Then President Ronald Reagan attacked this problem by reducing taxes and increasing military spending.
The Savings and Loan crisis and Gulf War lead to a recessionary era from July 1990 through March 1991. This modest recession saw GDP decline to 1.5% while unemployment reached 6.8%. Although the recession officially ended in 1991, the U.S. experienced 7 consecutive quarters thereafter of very slow growth.
Who could ever forget the short and swift Dot-Com crash in 2001, and the horrific events of September 11, 2001? During this recession, the Nasdaq fell 75% while the S&P 500 lost 43% between 2001 and 2002. What lead the U.S. economy out of this recession: The housing market. What later initiated the next recession?
From December 2007 to June 2009, the housing market imploded and triggered the Great Recession. Some of the largest U.S. financial institutions collapsed under the default weight of mortgage-backed securities. During this time, unemployment rates hit 10.5% and the GDP declined 4.4%. What did the government do to re-energize the economy? Congress passed a $1.5 trillion stimulus package.
What lessons did the construction industry learn during these past recessions and why is history so important to those who are responsible for developing a strategy for 2021? The circumstances and events we find the U.S. in today, and those in upstate New York, are not unique. History has proven the construction industry has endured those same challenges we are experiencing today. And while the politicization of the coronavirus is evident, some pundits have argued the over-reaching of governmental authority has crippled the economy more than the virus itself. Through it all, the construction industry has learned how to not only endure times of uncertainty but position itself to be stronger when the crisis is over.
People often ask me what I think about the current state of the construction industry in upstate New York. My answer is the current state of the industry is strong, despite the pandemic and the new “norms” mentioned above that has caused the industry much angst and money. While 2020 is still in play, I do have concerns for 2021 and 2022 for the reasons mentioned in my prior article about the lack of funding for future public and private projects. The many regional architects and engineers I speak with share my belief, in that this recession will end when a vaccine is developed and our elected officials in Washington, D.C. pass a meaningful infrastructure stimulus package to address the crumbling infrastructure in our country – but specifically in New York State.
During this time, and while planning for 2021, I would encourage construction industry executives to identify:
- Means to become more efficient
- Market segments that provide your company the best return on your investment
- How to improve the quality of your team
- How to improve your firm’s information technology
- Future training and/or equipment needs
- Other areas to achieve economies of scale
Recessions and market trends come and go. Those of you who have been in the construction industry long enough know this and have positioned your company to endure the hardship, only to ultimately persevere and prosper in the long run. What is new about the current environment? New York Governor Andrew Cuomo’s ability to unilaterally control businesses opening and closing. Such strict governmental mandates and regulations on businesses is unique in our history, so we have no history lessons to lean on to know how to react when governmental mandates adversely impact businesses and the employees they hire.
In the end, upstate New York’s construction industry and those executives who lead their companies will be resolute. Perseverance will overcome fear and determination will overcome governmental mandates. Lessons will be learned from COVID-19 that will resonate for generations.
The construction industry will lead the way to our regional economic recovery; unfortunately, there will be tumultuous times ahead as I anticipate a very challenging time in 2021.