Envisioning a Reimagined Future: The Post COVID-19 Recovery Outlook
How will the construction industry recover in a post-pandemic world? On May 19, 2020, FMI Principal and Managing Director of Research & Analytics Jay Bowman at FMI, presented a webinar on the topic, providing key insights for construction leaders. We’ve summarized them here.
Changes Aren’t Permanent, but Change Itself Is
We all know that the world will be different from now on, but understanding how it is going to change will be critical to emerging from this crisis stronger than before. Business owners must ask themselves the tough questions like: will you be a contractor for all time, versus just a point in time?
The times we are going through are jam-packed with uncertainty, but that does not mean that the future is unknowable. Contractors can use the information that is available to build a model that is capable of predicting the future as best as you can. Some of the available statistics that you can use to help benchmark and predict trends are:
- Wholesale/retail sales
- Industrial production
- Real income
GDP Impact & Recovery Projections
There has been an unprecedented decline in GDP forecast and economic output so far in 2020. Despite recent political tensions and volatility around reopening of economies, GDP is expected to rebound in Q3 and Q4 of 2020, but with some significant drawbacks and longer-term negative impacts, such as a staggering number of lost jobs, a very high unemployment rate, and a significant drop in retail trade and food sales.
There are currently three models being used to predict and map the road to economic recovery:
- The Best-Case Scenario – A short COVID-19 impact. This is the V-shaped recovery that we often hear about. After a sharp drop in leading economic indicators, there is an equally strong rebound in a short amount of time.
- The Mid-Case Scenario – The U-shaped recovery would translate to three-quarters of GDP decline, followed by a gradual recovery. This is dependent upon an effective treatment or vaccine of COVID-19 being discovered and effectively distributed within the next 12 months.
- The Worst-Case Scenario – This is the dreaded L-shaped outcome, where there is 12 to 18 months of no vaccine or effective treatment discovered, and a resurgence of COVID-19 cases in the fall or winter months.
The current interim prediction falls somewhere between the mid- and worst-case scenarios. It is expected that residential building will suffer from credit constraints and loss of wealth, while non-residential building construction will be very uneven. It is also expected that different industry segments will be hit harder than others in a similar manner to the Great Recession. Segments will range from a brief deep decline to a prolonged deep decline.
Decision-Making in Uncertain Times
Decision paralysis can be one of the most dangerous outcomes from navigating a crisis like COVID-19. This type of decision making comes from a high aversion to risk with too much reliance on data and information. On the other end of the spectrum, acting on gut instinct can lead to poor decision-making as well. This type of ready, fire, aim, decision-making results in early decisions being made but without consideration for new information.
The companies best at weathering a crisis fall somewhere in between paralysis and gut instinct. However, only 10% of businesses typically have a plan, while 10% panic, and 80% simply do nothing. The biggest mistake a contractor can make in times of recovery is not moving fast enough. Bowman lays out three key points to making smart decisions during the recovery:
- Avoid decision paralysis
- Align with your customers’ needs
- Know when to say ‘no’
FMI will continue to update these items above in their second-quarter outlook which should be released in early June. Contact a member of the Barnes Dennig construction team today to discuss our analysis of the current environment and how your business can best position itself for a smart recovery.
Click here for the FMI presentation slideshow.