Construction Businesses Should Brace for a Recession

Contractors can take steps to withstand times of financial crisis.
By Zaid Rahman
August 22, 2022

Last month, the International Monetary Fund released a report forecasting a 2023-2024 recession—and while this wouldn’t be the first financial institution to release a report with these projections, this report shares unique insights into how people inside the construction industry are feeling about this new information.

It’s not just the report hinting at an oncoming recession impacting the construction industry; individuals in the construction industry have taken to rapidly-growing Reddit threads to ask questions and share theories about the impacts of a challenged economy on the construction industry. Construction workers say their company leads have dropped in the past few months and are worried about finding a backup plan to survive an economic downturn.

Construction’s Recession-Related History

It’s difficult to anticipate the future, but looking at the past may provide insights into what the predicted 2023-2024 recession may bring. According to recent figures, over 7 million Americans are currently working in construction—about the same number of Americans in the industry right before the 2008 recession, colloquially called the Great Recession.

During the Great Recession, the construction industry was hit hard. The number of operational construction firms dropped by nearly 150,000 between 2007 and 2013 and over 2 million construction workers lost their jobs due to a combination of layoffs, industry exits and retirements. While it’s unlikely the duration and impact of the impending recession will be as severe, construction firms are already contending with their share of challenges—supply chain disruptions, inflation, labor shortages and more—and those factors could, unfortunately, make up the difference.

Data from Google Trends shows that many in the construction industry are bracing for those impacts. Since 2004, there have been three search spikes for the term “construction recession” that average more than 400% over the baseline: 2008 (likely due to the Great Recession), March to June 2020 (likely due to COVID-19), and between June and July 2022. While there’s no way to know who is conducting these searches, it’s safe to say a recession is certainly top of mind for many in the industry.

Looking Ahead to the Positives

That said, some construction sub-industries aren’t too worried about a potential recession. A recent poll by the Association of Professional Builders, which has members in the United States, Canada, Australia and New Zealand, found that some construction companies—particularly those in the home building sub-industry—are looking ahead toward the possible recession with optimism.

While APB predicted in its report that there would be a downturn in demand for home builders in the United States, a rise in demand this year has ensured that many construction workers in that industry will remain confident in their ability to weather a recession.

Preparing for the Recession

While the overall sentiment appears to be trending toward the negative regarding a recession’s impacts on the construction industry, it never hurts to take a page out of the sub-industries that aren’t so worried about preparing for the worst. Doubling down on generating opportunities that will enable them to still sign contracts in the next six to 18 months and focusing on the long sales cycle will empower construction companies to remain afloat in uncertain financial times.

Remaining abreast of fixed expenses and revenue is also crucial. The 2022 State of the Residential Construction Industry report indicated the approximate benchmark for fixed expenses is around 15% of annual sales for construction companies making over $3 million annually—and that number shifts exponentially depending on company revenues. Making educated guesses about very real numbers in the months and years to come will enable construction companies to continue operating even amidst a recession.

While there appears to be overwhelming concern from those in the construction industry about an impending recession, some sub-industries may not need to worry as much—and every organization within the industry, regardless of specialty, can take steps to withstand times of financial crisis that may be looming large on the horizon.

by Zaid Rahman

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