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Dive Brief:

  • New data turned heads last week when new construction starts, jobs and backlog all notched solid gains to provide a glimmer of hope for the industry, following a summer of worrisome trends that emerged in the immediate aftermath of the COVID-19 pandemic.
  • Nonresidential building starts rose 16%, while nonbuilding construction — which includes infrastructure projects — jumped by 40% in August, according to Dodge Data & Analytics. By the end of July, the industry recovered 59% of the jobs it had lost, according to New York City-based accounting firm Marcum. In even more good news, backlog rebounded to eight months in August, according to Associated Builders and Contractors (ABC).
  • The numbers indicate that construction has rebounded from the negative effects of the coronavirus pandemic more than any other U.S. industry, according to economists associated with two of the reports.

Dive Insight:

Nevertheless, the good news came with a dose of caution: “While there are reasons to believe that the months ahead will present challenges for nonresidential construction — including tighter credit conditions, weak state and local government finances and elevated commercial vacancy rates — the August data provided a much-needed respite from gloom and doom,” said Anirban Basu, chief economist at ABC in a statement.

The triple shot of positivity comes in stark contrast to a series of economic reports this summer, which showed starts, jobs, backlog and profitability in the nonresidential construction sector all tumbling due to projects being put on hold or canceled due to economic uncertainty caused by the pandemic.

It also provides evidence that construction’s essential status helped the industry maintain momentum during the darkest days of government-ordered shut downs, which has enabled it to bounce back faster than other industries, according to Basu and Joe Natarelli, national construction industry group leader at Marcum. Construction’s 8.9% unemployment rate comes in lower than the national average of 10.2%.

“The industry has rebounded faster than any other economic segment,” said Natarelli, in the firm’s second quarter Commercial Construction Index report. “If an infrastructure bill gets approved in the near future, we can look forward to long-term growth for the construction industry.”

Indeed, the 40% growth in nonbuilding construction starts including infrastructure, resulted in $184.4 billion in activity, which nearly reversed all of the declines in the segment from the previous month. Environmental public works starts posted an 89% gain, while highway and bridge starts moved up 13%.

“Construction starts continue to make up ground following the nadir in activity in April,” said Richard Branch, Dodge’s chief economist, in a statement. “Residential and commercial construction are driving the gains.”

Perhaps the brightest spot among the trinity of upbeat snapshots was the rise in backlog, which is more of a forward-looking indicator than either starts or current employment. When backlog declined in July, many industry observers cautioned it could be a warning shot across the industry’s bow of still more ominous developments ahead. But the uptick in August means contractor’s scheduling books are now only a half month slimmer than they were at this time last year, near the zenith of the economic boom that was stymied by COVID-19.

The silver lining for the construction industry comes down to one word: backlog,” said Natarelli.

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