As businesses close in an effort slow the spread of COVID-19, all industries are beginning to feel an economic impact, including construction.
“The past two weeks have seen an unprecedented shuttering of the U.S. economy,” says Richard Branch, chief economist at Dodge Data & Analytics.
Dodge reports that while first quarter GDP is expected to decline 0.1%, a fall of 6.3% in possible in the second quarter. “As a point of comparison, the deepest quarterly GDP decline during the Great Recession was an annualized -8.4% in the fourth quarter of 2008,” says Branch.
Many areas of the country have shut down projects while others have deemed construction an essential service. Even when not mandated, “an increasing number of owners are halting or cancelling projects. This may be to help enforce social distancing and other efforts to slow the spread of the virus, or because demand for the project has dried up, at least temporarily, or because the owner's financial situation doesn't allow it to proceed,” says Ken Simonson chief economist at The Associated General Contractors of America (AGC).
Simonson expects that construction will be less affected than other industries in the short term, but there could be a longer lasting impact. “It will take individuals, businesses and governments longer to commit to new construction once the pandemic recedes than to start up many other types of spending and activity,” he says.
On the commodity side, as COVID-19 spreads in the U.S. and Europe, markets are facing price decreases similar to what China experienced in the first quarter. Overall prices fell 5.2% in the past week, according to the IHS Markit Materials Price Index (MPI). Year-to-date, prices are down 18%. IHS Markit predicts that production cuts could be on the horizon, particularly for aluminum, zinc, pulp and rubber.