Coming right on top of the pandemic, without a pause for breath, war in Ukraine has added to the world’s economic troubles. And politics, national and global, are an additional factor.
In this article we are addressing the state of the economy, particularly as it affects the U.S. construction industry from the point of view of AWCI member contractors. We all read or watch the news, but it doesn’t necessarily match what we experience in our own businesses and lives. We wanted to know from our contractor members on the ground how things are economically for them and any special measures they find themselves taking to secure economic stability and growth for their companies. While there are variations geographically, by market sector and from company to company, there is a definite overall picture that comes into view in the following responses.
The State of the Economy
Our first question was, “Specifically, how are things financially for the construction industry in your area?”
Steve Ruggieri, president of All Walls & Ceilings in Newtown Square, Pa., says, “Being a union contractor, I find there is a lot of union bidding activity out there, mainly in the City of Philly. I find there are more GCs bidding on fewer union projects, and at least four to six subs like myself bidding those particular union projects. Lots of competition makes for lower numbers. It seems like a race-to-the-bottom approach.”
“There’s plenty of work in Texas,” says Stan Marek, CEO of Marek Brothers Systems, Inc. in Houston. “Labor and supply chain issues are a huge factor, but I think the danger in our market is that a lot of firms took work with too little margin as we came out of the initial phases of the pandemic. Being declared ‘essential’ was critical but the work that was sold in that period did not anticipate the ‘COVID hangover’ of more work with less labor available and historically high material costs. I think we’ll see some interesting ‘workouts’ between some GCs and their subs.”
“Margins are tough,” Bret Young, sales manager for Marek, confirms. “We’re still struggling a bit to load our boat with backlog. The volume sold tends to burn up in the same month. We are striving to sell more than we burn. Wages are up, which is good for craft workers to have a better life.”
In New Jersey, Bill McKibban, vice president of AIMM Inc. says things look OK. “We still see construction activity and no one of any substance has gone away. People have slowly and grudgingly accepted longer waits and higher prices.”
“We are seeing slower pay from all general contractors, which is a great concern!” says a North Carolina contractor who asked for anonymity.
From further afield, in Hawaii, Michael Mazzone, president of Statewide General Contracting & Construction Inc., reports, “Construction in our area has been steady for the past two years. Construction in Hawaii was listed as essential, and I think that allowed it to stay steady.”
Dave DeHorn, chief estimator at Brady Corporation in Los Angeles, says, “Southern California is usually one of the last areas to go into a recession and one of the last areas to come out of a recession. The pandemic postponed many of our projects in 2020 and 2021, and we are seeing some of them come back to life in late 2022 and early 2023. Margins still seem to be low in order to compete in Southern California. Steel prices have come down a little, but fiberglass products like glass-mat sheathing are still quite expensive. Lead times are long.”
Adam Barbee, senior estimator/project manager at Daley’s Drywall in Campbell, Calif., says, “Despite the economic rollercoaster, the record inflation and the recent pandemic scenario, the heartbeat is still there and projects are still developing.”
It’s a fairly similar story everywhere.
Action
Next we wanted to know what special measures contractors are taking to make sure their company stays afloat and continues to be profitable and grow.
“Being debt free is a good first step,” says Ruggieri. “I don’t think growth is mandatory. What’s wrong with being content with a certain yearly sales goal and performing that work well? I prefer the sharpshooter to the wide buckshot approach,” he adds.
“We did 10 years ago after the 2010 crash and became a debt-free business!” says our North Carolina respondent.
Marek says, “Being an 85-year-old company has some advantages. We’ve been there and done that before so we planned well for a downturn, if and when it comes. Liquidity is key and having long-term relationships with GCs, vendors, banks and the bonding company is paramount. Our biggest issue is the cost difference we face bidding work with an hourly, well-compensated workforce while many of our competitors use subs and labor brokers. The delta is significant but many of our GCs know they can rely on us to do the job on time and with the quality they expect.”
“We are diversifying by adding complementary specialty scopes such as fireproofing and K-13 acoustical/thermal insulation spray as well as stretched fabric acoustical wall and ceiling systems, demountable glass partitions, and manual and motorized window coverings,” adds Young.
“Our business is not reliant on carrying a large overhead,” explains McKibban. “When things are slow, we become smaller; when they heat up, we are able to ramp up.”
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Mazzone says, “Since most of our work is for the government, we have made an effort to stay on top by having bond information up front before we sign any contract.”
“We have built our equity this year,” says DeHorn. “Large projects that take over two years to complete tend to drain financial resources, especially when you pay employees weekly and material suppliers monthly. Retention on job sites also puts a strain on your finances. You get paid once a month and that check is usually out 60 to 90 days. You can be upside down for the first 50% to 75% of the project. Our operations and administration departments work hard on monthly billings and collections to make sure they are as caught up as they can be.”
Barbee says, “We are doing our best to be as strategic as possible with the goal of maintaining profitability. This is a very competitive market at these times. So it takes a good team to have a plan and make it work. Sometimes there are sacrifices along the way. But we keep our sights set on the big picture and the destination. That opens the door to progress and long-term success.”
Crystal Ball
What about the immediate economic future? How does that look?
“My business was more profitable a couple years ago and less profitable now,” Ruggieri reflects. “I see the glass as half empty.”
From New Jersey, McKibban reports slightly better prospects. “It looks good, not great,” he says. “Our backlog is healthy but much of that is work that has been delayed due to all the things associated with the pandemic. 2023 looks neutral.”
Nor does Hawaii look great, as Mazzone explains: “Currently, our cash flow is lower than I feel comfortable with. We had a surge in work for the summer, so we had to hire to stay up with schedules.”
In North Carolina the future looks, “scarrrrryyyy,” according to our local respondent.
Marek in Texas says, “There is a lot of uncertainty in the world situation, but with the amount of money going into building (hedge against inflation) and a massive infrastructure bill on the way, our industry should do well.
“I personally feel any movement on the immigration front would help. DACA is a no-brainer, and we have to be able access those young men and women who were brought here as kids. There are an estimated 2 million waiting for DACA to reopen. We’ve spent billions of dollars educating them and when they graduate, we can’t hire them. That’s low-hanging fruit that would be great for our industry.”
“We have a good backlog but need to fill in the ‘valleys’ with medium to smaller projects,” says DeHorn, in Southern California. “The private sector is still down, but public-works money from bond measures is fueling school districts at all levels, and higher-education projects are strong as well. Unfortunately, we are seeing more competition in this area. This results in a careful selection of which projects to pursue and which projects to avoid.”
“We do our best preparing for the ultimate unknown,” says Barbee. “We do see a possible downgrade with growth expectations in the market.”
Final Thoughts
Finally, we asked for any other thoughts on the current and future state of the economy for the U.S. construction industry as a whole.
“As always, what goes up must come down and always repeats: stock market, commodities, politicians,” Young points out. He says he is holding positive that we will resume and maintain a slight upward trend soon as it appears some overseas manufacturing is coming back to our great nation. “I’m guessing this will bring more control of production and inventories, not to mention making up for the lag of goods coming on the slow boats from China.”
McKibban is in a wait-and-see frame of mind: “Without trying to sound glib, check back with me after the mid-terms,” he says.
In Hawaii, the prospects from Mazzone’s viewpoint are mixed. “I feel in the short term the government’s spending will help the industry. But I fear in the long term the overspending is going to crush not only construction but many other industries and the economy as a whole.”
“It will be interesting to see what happens in the next 10 years with respect to electricity,” says DeHorn, looking at a specific trend in his part of the world. “I don’t know how our infrastructure will keep pace with all of the politicians and their demands that we move from fossil fuel to electricity. One thing is for sure: It will cost some money (out of our own pockets) to switch over. Delivery trucks to and from the job will become electric, as will plaster/fireproofing pumps and mixers at the job site. Instead of refueling them when needed, these items will most likely have to be charged overnight. We will probably be seeing temporary solar panels erected over job-site equipment so that they can be charged. Our biggest challenge will be how to deliver that electricity to the end user.”
Our North Carolina contractor respondent says, “Big, well-funded companies run the board. However, they will continue to exploit the small 1099 illegal subcontractors to their advantage. Until the government actually cracks down on the illegals issues in this country, this will continue to happen.”
“We have experienced a strong and steady current in the market for a long time, and it’s been a really good run for all,” Barbee reflects. “We do see a slowdown but still have faith that there will be progress, and the current will continue, even if not as strongly. It is a good time to have a well-established company with repeat customers and loyalty.”
It’s clear that it’s not business as usual economically for the construction industry anywhere in the United States. It’s also clear that AWCI member contractors are not despondent but are taking the necessary steps to cope with the current state of the economy and to build a better future, based on their experience and resourcefulness.
David C Phillips, a freelance writer and photographer, is an original founding partner at Words & Images.
