Presidential election, mixed economic outlook to affect builders in 2020

Last week, corporate leaders and business owners breathed a collective sigh of relief as 2019 ended with no sign of the economic slowdown that was predicted to hit the U.S. last year.

As 2020 begins, the new year looks strong for the commercial building industry, according to Anirban Basu, chief economist of the Associated Builders and Contractors. ​He told attendees listening to the association’s December economic forecast webinar that the sector’s strong average backlog — nine months as of August — “seems consistent with the notion that America’s economic expansion, now in its 11th year, is not on the verge of ending anytime soon.”

In a separate presentation late last month, Stephen Sandherr, CEO of Associated General Contractors of America, echoed that sentiment.

“The bottom line is that most contractors expect demand to remain strong and in many cases expand in 2020 despite signs that the overall economy may slow or stall,” he said.

Nevertheless, some indicators toward the end of the year pointed to a slowing construction sector, Basu said. These include rising corporate and consumer debt, uncertainty about materials costs, the lack of skilled labor and the high cost of recruiting and training workers.

“General contractors’ No. 1 complaint is that they can’t find workers who are willing to do the work that they can afford and that’s only going to get worse,” he said, noting that the U.S. has 7.3 million unfilled jobs.

“You could take every unemployed person in America and put them in jobs and we still wouldn’t have enough people for all the jobs,” he said.

These types of challenges are adding up to bad news for some construction firms, as Basu said he recently heard from executives of large contracting firms that their companies are working faster through their backlog than they are adding to it. “I haven’t heard that in quite some time,” he said.

Election question

One thing that’s for certain in 2020, Basu said, is that the upcoming presidential campaign and election will create uncertainty for U.S. businesses. Corporations will face an indefinite future throughout the year regarding taxes, health insurance, defense contracting, trade relations and regulations, he said.

“People may say, ‘Well, we have presidential elections every four years so it’s not going to be a big deal,'” he said. “But with this election, the distinctions are so great between candidates, more than ever before, so people will wait to see what the outcome is.”

In addition, contractors that have benefited from President Donald Trump’s rollback of costly regulations might worry that policies could abruptly change if a new leader is elected, Sandherr said.

“All of the things this administration has done to roll back the regulatory burden to help with permitting and get projects out quicker would be under the microscope in a different administration and that would certainly be a concern for contractors,” he said.

Even state and local government policymakers will face ambiguity regarding future federal spending, Basu noted.

Ultimately, the heightened level of uncertainty could induce many companies and individuals to adopt a wait-and-see attitude, further reducing economic activity in the context of an already rapidly softening global economic environment, he said. The third and fourth quarter of the year could be hit especially hard by this uncertainty, the ABC official said.

“Many business owners might say, ‘I’m not going to take on a new lease or sign a contract for a new building until I see what happens with the election,'” he said. “‘Until I get some certitude around some of these things I’m not doing anything.'”

One area in which both construction economic experts see agreement in Washington is infrastructure, as politicians from both sides of the aisle agree that a comprehensive federal package is needed to repair the country’s aging roads, bridges and dams.

Nevertheless, said Sandherr, the challenge will be in how to pay for the upgrades.

“Nobody wants to put their fingerprints on a tax increase,” he said. “So they’re going to have to be clever in proposing methods to pay for these programs through user fees and other general fund transfers.”