Yes, no, maybe. Predictions remain afloat on many scenarios for economic conditions. Interestingly, Ken Simonson, chief economist for Associated General Contractors of America (AGC) point to signs of optimism. Read on to understand the trends—and get tips on “just in case” best practices for builders too.
Lots of Money To Spend?
Some economists, like Simonson, see signs for optimism in the spending power of many consumers and businesses, as well as public dollars. Construction Dive shares these recent incites from AGC’s lead economist:
- Strong job openings, wage growth and robust investment into equipment, IT and overall plant construction indicate the U.S. economy should avoid a recession this year.
- Manufacturing and infrastructure projects, boosted by the Infrastructure Investment and Jobs Act and the CHIPS Act, remain the bright spot in terms of construction activity…
- “I remain optimistic that we’re not going to have [a recession]. There’s just a lot of spending power on the consumer side and business side. State and local governments at all levels also have a lot of money to spend. Tax revenues have held up in a way that you don’t see during a recessionary period….”
Of course, risk of recession remains, as some developers complete current projects and say: “‘wait a minute, my construction costs are going up, my financing costs are going up — and I can’t cover that with higher rents,” which could result in a slowdown in vulnerable areas such as warehouses, retail and lodging. Nonetheless, a recession may be avoided due to anticipated “huge growth” in manufacturing, especially battery plants for electric vehicles and carbon capture:
Manufacturing spending increased about 5.9% in January and remains up about 53.6% since January 2022, according to an Associated Builders and Contractors analysis.
Major projects in the sector include a $4 billion Panasonic EV battery plant in De Soto, Kansas, and a $3.5 billion Ford EV battery plant in Marshall, Michigan, to name two.
“Manufacturing has been on a real tear. [There are] immense fabs going up outside of Phoenix, Austin and more recently Columbus, Ohio,” said Simonson. “We’re also seeing announcements practically every week about similarly large auto assembly or electric vehicle battery plants.”
Similar to Simonson, other economists last month pushed back their forecast for the start date of a U.S. recession, according to a survey from the National Association for Business Economics. Previously, about half of economists had forecast a downturn would start during the first quarter of 2023.
Better Safe Then…?
Construction Dive also reports that some industry experts, including attorney Eric Singer are cautioning contractors to prepare for continued economic challenges. Pointing out: “By the time a recession hits, it’s too late,” Singer advises ever more careful review of contracts for a clear understanding of the responsibilities of all parties involved. Colonial Surety’s lead underwriter, Phil Shepard further suggests:
Be sure to take on work you are confident you can finish. If materials and labor becoming challenging, the capacity to complete contracted projects is critical. It’s also a good idea to squirrel away as much in profit as possible, in case work becomes lean. Saving money for the unknown, rather than splurging on every exciting new piece of equipment or gear is wise. If you have a habit of spending beyond your means, now’s the time to concentrate more on putting away a little extra.
It’s also an important time for contractors to follow the flow of money for publicly funded builds and nonresidential builds, as well as to put more effort into building relationships. Additional tips on growth strategies, including bidding more, are right here. Remember, Colonial Surety is always ready to help builders increase profitability too, via The Partnership Account® for Contractors. Get free insights and financial scores just for completing the pre-qualification.
Once qualified, The Partnership Account® provides builders with a surety line of credit—in writing—and a private digital dashboard. Use it to access real time financial intel, including a day to day snapshot of single and aggregate limits and current and available bond capacity. Go ahead: update work on hand, increase your aggregate and move that next project forward. Got a special opportunity coming along? Let’s connect—that’s what partners are for, right?
The Partnership Account® for Contractors helps contractors grow strategically, one win at a time, via:
- Control of bidding and bonding, online and in real time.
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Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Let’s connect today: LinkedIn!