Industry CEOs see some altered business realities ahead as the COVID-19 pandemic lockdown lingers, with two new surveys pointing to market disruptions and downturns in upcoming quarters through next year.
Many leaders are taking steps to keep their companies as stable as possible, particularly in preserving the workforce needed to gain or regain market share and momentum.
Virus impacts and projections resonated among 58 design and construction firm CEOs responding to the second-quarter outlook of the Construction Industry Round Table (CIRT), a group of about 130 industry chiefs, with respondents reporting huge quarterly declines in two key measures, according to a March 18-27 survey by management services firm FMI.
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The CIRT “sentiment index” for the second-quarter of 2020—which ranks combined economic, market and business cost measures on a 1-to-100 scale—experienced an “unprecedented plunge” to 21.6 from 63.6 in the first quarter, FMI says.
Similarly, the survey’s design index also dropped sharply to 39.8 from 62.7, which FMI says indicates a reduced level of project opportunities expected.
Sentiment Index Decline: 'Historic'
Terming the declines “historic,” FMI points to pandemic-generated “fear and uncertainty,” among respondents in their open-ended comments, reflecting “corresponding market disruptions and volatility,” changing state and local virus restrictions and depressed oil prices.
CIRT and FMI declined to share those comments with ENR.
The CEO respondents—55% from construction firms, 26% from designers and 19% whose firms do both—are somewhat optimistic that government stimulus plans can deter losses, “but an economic recession appears to be a very possible, if not an imminent threat,” says the FMI analysis.
Nearly 60% of respondents report project completion impacts, with two-thirds of those citing delays of one to three months, and nearly 20% seeing schedules extended by six months or more, or indefinitely, says FMI. Nearly 40% of CEOs report a greater concern for material availability than price.
Almost 60% of respondents see a moderate backlog decline in the next quarter, with 12% labeling the drop “significant.”
About 27% of CEOs said their local market economy will be significantly worse in the next three months while 42% have the same outlook for the U.S. economy.
Related to market sectors, not surprisingly, CEOs see lodging, commercial and international work being hit particularly hard in the short term and beyond, related to both design and construction. Health care appears to have the best future. It was the only market to post at least a score of 3 on both the design and construction outlook indexes, based on a 1 to 5 scale.
“Construction respondents anticipate commercial, education, international, lodging and office will all remain depressed well into 2021,” says FMI. Design CEOs predict public works will worsen, 47% moderately and 13% significantly, but about one-third see moderate improvement in industrial and transportation work.
According to FMI, 26% of CEOs have reduced staff and overhead, “although many open-ended comments suggested more are considering these reductions.” About 20% of respondents are opting to delay commitments to future work.
Long Haul Ahead?
Among 281 CEOs responding to the latest COVID-19 impact survey by AEC Advisors Inc., executed in mid-April, respondents say that the amount of delayed backlog and backlog set for delay have both steadied.
The largest share of the AEC respondents lead firms with revenue of $100 million or less, and all but 26 of those are employee or ESOP-owned.
“With the vast majority of end-markets seeing declines in new project pursuits, we expect many firms will experience a prolonged negative impact, which is likely to creep into 2021,” says the firm’s analysis.
Also, as in past surveys, AEC Advisors says CEOs “may be underestimating the impact that the revenue declines will have on their earnings.”
Related to staff cuts, AEC Advisors now reports layoffs or furloughs have been executed or planned by 51% of respondents. While the executed proportion grew to 38% from 26% two weeks ago, the overall share of those not planning any reductions stayed steady. “Firms that are cutting are also more likely to be asking staff to use paid time off,” says the analysis.