Wisconsin’s construction economy: One year into the pandemic

By Kyle Schwarm, ABC of Wisconsin Marketing & Communications Director

A year ago, our economy took a dive like never before. As the pandemic hit, businesses were forced to close down for what was supposed to be four weeks. Many were forced to find new ways to deliver services. Others did not survive, especially many small businesses. The economy contracted at a 31.4% annualized rate in the second quarter of 2020, the deepest drop on record, according to the U.S. Commerce Department.

Fortunately, contractors were included in the list of essential businesses and could continue operations after the longest economic expansion period in U.S. history.

“This is nothing we’ve ever seen before,” said Dennis Winters, chief economist with the Wisconsin Department of Workforce Development. “We don’t know quite what to make of it and we certainly aren’t going to be very good at figuring out what’s going to come.”

Winters calls what has happened the “bam-boing” recession because of how abruptly and intensely things hit and how quickly they seem to be coming back.

“COVID came in and we started shutting things down and jobs went away in a heartbeat,” Winters said. “They come back pretty fast.”

GDP chart

While job numbers are still down, half the 22 million lost jobs in the nation have returned. In Wisconsin, more than half the 450,000 lost jobs have returned. The gross domestic product

 GDP), which dropped at an annual rate of 31.7% in the second quarter, bounced back up at an annual rate of 33.1% in the third quarter.

Throughout 2020, contractors had ample work to keep crews busy, but uncertainty lingered into last winter. While many construction projects were placed on hold, most of those projects appear to be coming off the shelves and into design.

“As was the case for many, if not most design firms, 2020 design project workload was definitely impacted by COVID,” said Michael Maas, AIA, NCARB, partner/senior architect with Architectural Design Consultants, Inc. Maas, who works closely with many ABC of Wisconsin members, said he knows several contractors who were overwhelmed with workload in 2020. He has great optimism for 2021, based on how the year started.

“It seems many clients and developers are sensing more stability with the new year, and with that renewed energy they are looking to engage project designs.”

Contractors seem to be in agreement.

“We are very optimistic about 2021 and beyond,” said Gene Schleusner, senior vice-president of business development at ABC of Wisconsin member Consolidated Construction Co. “Many of the projects that had stalled out in 2020 due to the economic effects of COVID-19 have restarted. Clients seem to be looking beyond COVID-19 as well and starting to talk about new project starts at the end of this year for 2022.”

Many of the projects that had stalled out in 2020 due to the economic effects of COVID-19 have restarted. Clients seem to be looking beyond COVID-19 as well and starting to talk about new project starts at the end of this year for 2022.

This has made subcontractors busy as well.

“We see subcontractors already booked up for this year; some stating that they will not be taking on new work until 2022,” said Schleusner.

This is obviously good news for subcontractors but puts a strain on generals in need of their services.

Wisconsin has been fortunate. In many states, commercial contractors have been tapping into the residential market, which has been heating up. Not only is the demand for residential rising, but many non-residential contractors made the shift to simply stay afloat. Non-residential construction has recovered a bit nationally over the past few months, increasing nearly a full percentage point from December to January, with the ABC Backlog Indicator increasing from 7.3 months in December to 7.5 months in January.

Non residential spending chart

“It is remarkable that overall nonresidential construction spending has stabilized recently despite the lingering impacts of the COVID-19 pandemic,” said ABC Chief Economist Anirban Basu.

Nationally, construction spending in lodging, office, religious and manufacturing appear to be softest. While some of these areas are impacted in Wisconsin, the industry has been able to continue fairly steadily in the state.

“We have heard of some contractors that had been overwhelmed with workload in 2020,” said Maas. “For everyone, we believe there is plenty of reason for great optimism going into the new year. The design and construction markets have proven resilient over many decades of history.”

Other positives include the availability of money, according to Schluesner, who says business owners seem more confident now to make some capital investments in things like equipment, vehicles and buildings.

In addition to the continued stress on skilled labor, major impacts continue to be material availability and material pricing.

“Obviously, this directly affects construction schedule and cost,” Maas said. “Due to this, planning efforts for both design firms and construction firms are being impacted. We are seeing a wide variance in the bid market as well,” said Maas.

“Current material price increases are making it tough for clients to meet a pro forma with their proposed project or new business development,” said Schluesner.

Basu said some of the increase in spending is the result of higher materials prices, which will could impact profits, at least for some contractors.

But overall, Winters said the industry should remain strong and the overall economy should “boing” back, given a few important variables.

“We’re in a good situation. Our savings are up and debt loads are down,” Winters said. “We got some pent-up demand going on. I think this will all come back, fairly quickly, all the all the ingredients are there for a nice surge.”

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