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The Q2 2020 USG Corporation + U.S. Chamber of Commerce Commercial Construction Index, released on June 23, plunged from 74 in Q1 to 56 in Q2. Two of the index’s three main indicators—confidence in new business and revenue expectations—both fell 26 points, to 50 and 44, respectively, revealing the severe impact of the COVID-19 pandemic on the construction industry. However, the third indicator, backlog, dropped only a modest three points, remaining consistent with the first half of 2018. Survey results were largely collected in the month of April, at the height of shutdown restrictions.
The overall drop in the index stemmed in part from the fact that very few contractors (16 percent) now express high confidence in the market’s ability to provide new business opportunities in the next 12 months (down from 54 percent in Q1), and there was a 30 percentage point drop in contractors expecting their revenues to increase (17 percent in Q2 from 47 percent in Q1). Meanwhile, the percentage expecting to see their revenues decrease in the next 12 months spiked from 2 percent in Q1 to 21 percent in Q2.
Yet several survey findings suggest that the commercial construction industry is poised for recovery. Contractors still have significant backlog, with 60 percent of contractors reporting they have at least six months of backlog (compared to 69 percent in Q1). More than eight in 10 (83 percent) say their revenue will increase or remain about the same in the next year. And, three in four contractors say they have moderate or high confidence that the next year will bring sufficient new business opportunities (and in the next two years, that percentage rises to 93 percent).
This quarter’s index also reveals that the commercial construction industry is an important employer and is ready to hire more workers. One in three contractors (32 percent) plan to hire more workers in the next six months, while nearly half (48 percent) believe their workforce will stay the same. Only 15 percent expect to employ fewer people.
“Even as most construction has been deemed essential during the last few months, the loss of new projects and revenue has been severe. This industry is key to our economy, representing three million American jobs and $700 billion in spending," said Christopher Griffin, president and CEO of USG Corp. “We’re watching closely signs of improvement, as commercial construction can serve as a bellwether for other economic development and recovery.”
When the survey was taken in April 2020 the vast majority (87 percent) of contractors reported they were currently experiencing delays due to the COVID-19 outbreak, with 87 percent expecting delays to continue into the summer and 73 percent expecting delays will remain in the fall.
However, contractors become less concerned about delayed projects as they look to the future. In April, over a third (35 percent) of contractors reported that at least 75 percent of their projects were delayed. Asked to look three months ahead, only 16 percent of contractors expected the same, and looking six months ahead, only 8 percent expect at least 75 percent of their projects to be delayed.
“No industry has been immune to the devastating impact of COVID-19,” said Neil Bradley, U.S. Chamber of Commerce executive vice president and chief policy officer. “However, the commercial construction industry appears poised for a quick recovery and a return to growth. This is good news for the economy and the millions of Americans who work in the industry. Congress can help by continuing to support the economy.”
Contractors quickly adapted their operations to comply with new safety guidelines. More than nine in 10 contractors (92 percent) said they changed work procedures to increase social distancing. And, contractors indicated worker health and safety is top of mind. Given a list to choose from of the most severe COVID-19 consequences for their business, three-quarters (75 percent) said worker health and safety is a top concern, followed by fewer projects (48 percent), and increases in workforce shortages (33 percent).
Asked how the pandemic will change how they do business in the future, contractors said adjustments to safety and work procedures would be the top change. They also expect big changes in more remote work for their staff and paying greater attention to language used in contracts.
The index is comprised of three leading indicators to gauge confidence in the commercial construction industry, generating a composite index on the scale of 0 to 100 that serves as an indicator of health of the contractor segment on a quarterly basis. The survey was in the field April 4-27.
The following were the Q2 2020 results from the three key drivers:
The research was developed with Dodge Data & Analytics (DD&A), a leading provider of insights and data for the construction industry, by surveying commercial and institutional contractors.
About the Index
The USG Corp. + U.S. Chamber of Commerce Commercial Construction Index is a quarterly economic index designed to gauge the outlook for, and resulting confidence in, the commercial construction industry. USG Corp. and the U.S. Chamber produce this index, along with DD&A. Each quarter, researchers from DD&A source responses from their Contractor Panel of more than 2,700 commercial construction decision-makers in order to better understand their levels of confidence in the industry and other key trends. This panel allows DD&A to provide findings that are representative of the entire U.S. construction industry by geography, size, and type of company.
Please note the Commercial Construction Index report is intended for general informational purposes only. It is not intended to support an investment decision with respect to USG Corp., nor is it intended to be used for marketing purposes to any existing or prospective investor of USG. This report is not a forecast of future results for USG and actual results of USG may differ materially from those of the commercial construction industry.