A Detroit construction site last week.
Photo: rebecca cook/ReutersContractors are returning to work across the country following a monthlong shutdown that many expect to foreshadow a severe slump in construction later this year as the U.S. economy staggers from the coronavirus pandemic.
States that halted construction work in March to slow the spread of the coronavirus, including Pennsylvania, Washington and New York, are allowing contractors to return to job sites. Other states such as California, Texas and Illinois allowed construction to mostly continue uninterrupted as an essential industry even as other businesses closed temporarily.
After completing work started this year, though, contractors say they see a drought for new jobs forming as property owners, banks and real-estate developers grow cautious until confidence in the longer-lasting economic recovery becomes stronger. As builders wait out a slump, so too will other construction-dependent industries, including machinery dealers and manufacturers, the steel industry and other material suppliers.
“The opportunities for new projects appear to be dwindling,” said Michael Funck, a senior vice president for Pennsylvania-based Wohlsen Construction Co.
An office building Wohlsen expected to start this year near Lancaster, Pa., was recently canceled. Construction of other buildings has been postponed for six months or a year, Mr. Funck said. Some banks have stopped processing loans, he said, as the U.S. economy slips into an almost certain recession.
Gauges of sentiment in the construction industry are signaling a sharp downturn. The American Institute of Architects’ monthly billings index fell to its lowest level ever in March, eclipsing lows reached during the 2008 financial crisis.
Along with less work for architects is lower demand for construction equipment. More than 90% of respondents to a recent survey by the Association of Equipment Manufacturers reported a drop in new orders. Kip Eideberg, spokesman for the trade group, said some equipment orders were cut after states deemed some projects nonessential.
“It’s having a chilling impact on demand,” he said.
A luxury high-rise apartment and retail building under construction in Arlington, Va.
Photo: Andrew Harrer/Bloomberg NewsCaterpillar Inc. on Tuesday reported a 27% drop in first-quarter sales of construction machinery. Financial Chief Andrew Bonfield said that while some highway construction projects have accelerated, other work has been pushed back. Competitor Komatsu Ltd. said average operating times for its excavators and bulldozers have fallen 12% from last year, according to data the company tracks through its services arm.
“The wheels started coming off the track,” said Rod Schrader, chief executive of Komatsu America. “Demand has fallen off.”
Construction is typically one of the last industries to deteriorate during a recession and one of the last to bounce back in the aftermath, because of the time it takes to plan, finance and build projects, especially commercial buildings and public infrastructure. Construction company executives and analysts expect a similar lag now.
“The next 18 months for construction is setting up to be quite horrible,” said Anirban Basu, chief economist for the Associated Builders and Contractors trade group.
A Lafayette College student housing project in Easton, Pa.
Photo: Wohlsen ConstructionDuring the financial crisis, spending on nonresidential construction peaked in October 2008 when other industries were already in full retreat. Construction spending continued to fall until early 2011, almost two years after the end of the recession. Spending didn’t return to the 2008 high until 2015. New residential construction remains far below the prerecession peak of more than two million units a year.
Construction had been on a roll before the coronavirus pandemic reached the U.S. Nonresidential construction spending tracked by the U.S. Census Bureau set a new high in January. Housing construction in the U.S. was on the upswing, too. Drew Bauer, owner of a kitchen and bathroom remodeling company near Seattle, said the area was experiencing a housing boom when Washington state ordered most private construction work to cease in late March.
“I had so many projects scheduled or in the pipeline,” he said.
Mr. Bauer’s 10 employees will be busy completing projects he rescheduled during the lockdown. But he expects a recession and high unemployment to damp enthusiasm for home-improvement projects. “If we get hit with a recession, my company would decrease in size,” he said.
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Carl Spencer, general manager of a Monroe, Wash., company that builds bathroom and kitchen cabinets, said he is working through pent-up demand for cabinets after his business was closed for a month.
“We’re in good shape for the near term,” he said. “The question is, what’s business going to look like by the end of June?”
K&D Industries of NY LLC lost three-quarters of its jobs hauling materials to and from construction sites when New York idled most construction work in March, office manager Vanessa Bjorkland said. K&D is behind on its bills, deferring payment on a bank loan and owing money for garbage collection.
New York’s stay-at-home order does have an upside though for K&D: There is less traffic, improving travel times to the few remaining projects. One being expedited is the renovation of Westchester County Airport, which has closed temporarily after nationwide air traffic plummeted.
“It really is an ideal time to be tackling a lot of this construction,” Ms. Bjorkland said.
Write to Bob Tita at robert.tita@wsj.com and Austen Hufford at austen.hufford@wsj.com
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