Business

The 2019’s Construction Industry Backlog and Predictions For 2020

Every day the news covers another angle of how the market is showing signs of getting closer to a recession. However, there are still some extremely bright spots in our economy.

At the same time, the construction industry is showing no signs of slowing.

One of the encouraging signs of the growth yet to come is the survey collected by USG Corp shows that 82% of contractors surveyed have a backlog of work.

The major cause of this backlog is the lack of skilled labor. Following the recession of 2008, many skilled laborers retired from the workforce. Fewer young people are choosing hard labor as a career, driving up the salary costs to the benefits of the remaining workers.

A good example of this is the salary of an electrician which has increased by 10% since 2009. Additionally, more jobs are opening up with the Bureau of Labor Statistics, projecting a 21% increase in demand for all construction roles from 2019 to 2022.

With the current projected growth at double the current national job growth average, the future continues to look bright for new workers.

How to Profit from This Construction Boom

With no current indicators that the construction industry is going to slow down any time soon, what is the best way to profit from this trend?

One of the first things to bring to the industry is to get trained and become highly skilled in one area. A high-end finish carpenter or cabinet maker is going to be able to demand a higher hourly wage than someone who does home remodels.

In construction, 70% of the industry does not have an advanced education. While a bachelor’s degree is not likely to add dollars to your hourly wage, taking on additional vocational training, or buying the tools and teaching yourself how to perform the task in your own time is going to set you apart.

It may take a year or two, but you’ll see a constant increase in the demand for your skills and how much you can charge for them.

Is the United States About to Enter A Recession?

These fears have reached a new fervor since the yield curve inverted on August 14th. The yield of Treasury bonds is considered an important signal of the economy in the United States. The 10-year bond yield dropped lower than the yield offered by the 2-year bond.

This yield inversion has historically preceded every recession for the past 50 years. The recession itself is likely to lag by several months following the yield curve inversion. Historically, there has been anywhere from seven to twenty-four months before the recession occurs.

However, it is too soon to stop production on those new homes and pull your funds from the equities market. History shows that in the immediate future following a yield curve inversion, the S&P 500 reaches new highs. There is still a lot of money on the table to be made before a retraction occurs.

What Should the Construction Industry Expect?

If the country enters a recession in 2020, then what does that look like for the construction industry.

Universally, everyone agrees that the problems which stemmed from the “easy money” lending policies and caused the great housing collapse of 2008 is not likely to repeat itself.

There are some thoughts that the multi-family construction category is starting to be oversupplied. Investors and banks, flush with cash from the past ten-year growth trend of the US economy, have been looking for places to deploy that.

Apartment complexes have been the preferred vehicle for that.

When we see a recession, there may be some regression in these multi-family properties that will affect the market for a little while following the recession.

Meanwhile, new home construction has remained quite slow, with a smaller number of spec homes being built following the 2008 crash.

While the residential market has slowed, we are still seeing a higher-than-normal pace of sales and increasing home values that are far outstripping the pace of inflation.

Commercial construction is also continuing at a rapid pace, with bond initiatives being approved across the country, and businesses reinvesting their profits into capital costs.

Aside from a slowing in the multi-family real estate front, the backlog of work that most construction companies are facing is going to carry them through any upcoming economic downturn.

How to Prepare for A 2020 Recession

This is a good time to remember that the good times do not always stick around.

Immediately, adjust your resources so that your company can put 20% into savings. By trimming operating costs now and creating a reserve, you are guaranteed not only your own self-preservation but also the ability to take advantages of opportunities that may arise when the economy goes south.

Secondly, this is a prime time to call in old debts. Right now, is the best time to collect. Your debtees are not going to be getting any richer. Use small claims court, if necessary, to immediately collected on past debts that are owed to your business.

Additionally, constrict your guidelines for repayment. At this point — and for the next 24 months — you should not be carrying any debt for longer than 30 days.

You want your business to be flush with cash and able to withstand a 13% drop — the average market correction.

Recessions offer an excellent time to buy up your competitors, push them out of business with increased ad spend, and gain market share.

For the business owner who has a backlog of work and is willing to increase his team’s training and his cash reserves, a looming recession holds nothing but a promise.

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