While the Great Recession took its toll on many industries, construction is an exception. While construction workers lost their jobs, the industry bounced back once the economy started to improve. When conditions improved, the industry faced a shortage of workers, making it difficult to fill construction jobs. At the same time, communities were building more homes than their local economies could support, and the housing bubble burst, leaving many people unemployed.
As a result, the construction industry may suffer in some areas but not others. For instance, remodeling jobs may be harder to come by, whereas home building jobs will be less scarce. According to the Associated General Contractors of America, as of May 2012, there were 466,000 construction job openings, up 39% from the previous year and the highest level since 2000. Despite the slowdown, layoffs and discharges in the construction industry were lowest on record last month. There are enough openings for skilled labor to keep the industry going, however.
Although the current economy may have cooled off by the end of this year, the supply chain issues will continue to plague construction for years. According to ABC’s Construction Confidence Index, contractor optimism has remained positive, but contractors’ expectations for profit margins to increase have slowed. Additionally, lack of supplies will push up the inflation rate more than the Fed’s projections for 2022. The Fed has forecasted that inflation will reach 4.3% in 2022 and Basu says it could be as high as 5%.
The recession will likely hit the United States economy in 2022, making it difficult for homebuilders to expand their business. As a result, there will be limited buildable land and skilled labor, and building materials will cost more than the housing market can afford. If this happens, the economy could experience more business cycles than normal, with the worst slump occurring in 2025 or 2024. If we aren’t careful, we’ll end up with a recession sooner than expected.
The most effective way to respond to an economy downturn is to prepare a contingency plan. Contingency plans are designed to help businesses respond to unexpected events, and the construction industry is no exception. The economy has been slowing down in recent years and politicians are debating whether to cut the budget for infrastructure, which will impact construction jobs. However, the best way to prepare is by being prepared and keeping cash on hand.
The housing sector led the downturn in the broader economy. Employment in residential construction and residential investment peaked in late 2006, and the economy as a whole peaked in December 2007. While the decline in overall economic activity was modest at first, it increased dramatically by the end of 2008, when the unemployment rate jumped from five percent to ten percent. In addition, the housing market was affected by the financial crisis, with mortgage loans becoming even more expensive and lenders slashing their rates.