Construction may be considered an “essential industry” under the state orders shutting many Minnesota companies down, but builders, architects and engineers are still feeling the economic impact of the COVID-19 pandemic.
A survey conducted by the Federal Reserve Bank of Minneapolis has found that delays and cancellations are growing and optimism plummeting among the state’s building trades. The survey, conducted March 23 to 25, received 550 responses from companies in contracting, subcontracting, architecture and engineering professional associations statewide.
Across all industries, more than half of companies responded they’ve seen delays on current projects or those expected to start in the next month, for a variety of reasons, Fed Regional Outreach Director Ronald Wirtz wrote. More than half (56%) of delays are reportedly due to owners having second thoughts about projects in light of the economic slowdown. Even for projects not on the cutting board, supply and regulatory disruptions are contributing to the problem.
“Delays were also resulting from a shortage of labor and materials — both of which are exacerbated by the outbreak — as well as a lack of availability of necessary government workers, who play an active role in construction projects by issuing permits, conducting inspections, and performing other tasks,” Wirtz wrote. “Many are following shelter-in-place orders, unable to give the necessary approvals to keep work moving.”
With such uncertainty abounding, companies are flying blind as they try to keep their doors open and their workers paid, said Mary-Margaret Zindren, executive vice president of the American Institute of Architects Minnesota.
“[Our members] are not in a great position to make predictions about what’s ahead for the industry broadly, what’s ahead for their firms, and yet they’re needing to make decisions every day about how they keep operating,” Zindren said in an interview.
For many companies, April is the start of the main construction season, and projects that previously were heated and enclosed by tarps will soon be exposed to the elements again, reducing the risk for on-site transmission, said Tim Worke, CEO of Associated General Contractors of Minnesota. Some job sites, especially on road and bridge projects, might actually be safer than normal because of the decline of usual traffic hazards, he said.
“[Construction work] is generally geographically and physically dispersed, especially highway, road and bridge work. It’s outdoor work, social distancing at its extreme in a lot of spaces,” he said, adding that he remains “very confident” the industry will be able to continue working through the outbreak.
Worke is not aware of any construction companies currently contemplating layoffs, but things may get worse before they get better. While only a third of AGC members reported seeing delays, more than 60% of AIA members said they’d had projects slowed or halted. That may make architects a leading indicator for what the rest of the industry will experience, Zindren said.
“It would make sense the architectural field would be seeing a higher percentage of work slowing down, because of their early role in the process,” she said. “Architects are the ones to experience impact from clients grappling with uncertainty earlier than perhaps other sectors of the design and construction industry.”
Regardless of their role in the construction process, companies are reporting dramatically lowered expectations for 2020. Although 46.5% of respondents held a “very optimistic” outlook for the year before the coronavirus, only 1% continue to feel that way. “Very pessimistic” on the other hand rose from 4.5% to 20.3%.
“I think that’s a rational response to understanding the depth and breadth of the impact of the pandemic on health and the economy,” Zindren said. “Our members are steeling themselves for a difficult path ahead for the remainder of this year and potentially longer.”
The Federal Reserve plans to repeat the survey in two weeks to gauge ongoing developments. The bank last week released a broader survey of businesses across the entire six-state Ninth District, finding similarly sharp declines in business optimism, and currently plans to alternate the two surveys weekly.
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