ABC Chief Economist Anirban Basu always says that the attendance for Construction Executive’s Economic Update and Forecast webinars is a good economic indicator. The more attendees, the worse the economy, vice versa. This year’s Mid-Year Economic Update and Forecast recorded 1,488 registrants with 487 attending live—and that number, plus attendees’ polling results, reveals consistency with Basu’s current theory.
Perhaps the economy isn’t doing as well as numbers on paper indicate.
Poll 1: Which of these is the leading challenge for your company today?
Summer 2024
- Supply chain/materials 7%
- Skills/worker shortage 56%
- Insufficient demand for construction services 15%
- Availability of financing for projects/project work 15%
- None 7%
Spring 2023
- 19%
- 58%
- 9%
- 11%
- 4%
Spring 2024
- 7%
- 60%
- 11%
- 17%
- 6%
“We have an audience that’s saying, ‘My problem is I can’t find workers to do the work,’ meaning, yes, interest rates are high, project financing is an issue increasingly, and yet [there are] still skilled worker shortages. And that does not suggest an industry that’s facing any kind of recession of its own, right? This is an industry that has enough demand to support it. In fact, in some cases, in some sense, too much demand.”
Backlog seems to be oscillating—due to the high prices of purchasing construction services, the difficulty of finding workers and the need to pay those already on payroll more—and is currently in an upswing.
Poll 2: Over the last three months how has your company’s backlog faired?
Summer 2024
- Risen considerably 13%
- Risen slightly 26%
- Same 32%
- Declined slightly 18%
- Declined considerably 10%
March 2024
- 13%
- 27%
- 27%
- 23%
- 10%
“In general, backlog has been shrinking for much of the past—roughly—year. So, if you look at June of 2023, we actually have some contractors indicating that their backlog is falling. Now for this group, backlog seems to be rising. So, what does that tell us?
“Now, one could ask the question, and this is a very important question: Is backlog rising because the demand for construction services is still growing and it’s strong and project financing is really not that much of an issue as much as many economists talk about? Or is it because it’s taking a long time to get construction work done? And does that relate, as it turns out, to the construction worker shortfall?”
Profit margins are expected to decrease.
Poll 3: Where do you expect your company’s profit margins to be a year from now?
Summer 24
- Substantially higher 4%
- Slightly higher 23%
- Same 40%
- Slightly lower 29%
- Substantially lower 3%
Spring 23
- 4%
- 27%
- 35%
- 29%
- 4%
Spring 24
- 8%
- 33%
- 38%
- 17%
- 4%
“So, something seems to have changed between spring of 2024, when 41 % said that they’re going to be higher to now and actually the proportion that are going to be lower is higher than the proportion that are going to be higher.”
Confidence Index
Basu notes the ABC Confidence Index from Feb. 2020 to June 2024 is still measuring above 50 and “that signifies the industry is still in growth mode.” He continues, “In the question of small business in America, [it is] a good time to expand your business for the next three months.”
Looking at this cumulative, relatively consistent data, Basu says there’s no indication the profit margin is going to collapse anytime soon, despite a decrease as suggested by polling.
General Inflation
Prices and rates are still high, and while a potential cut may be anticipated in the fall, the election could pose a stall.
“Everything’s getting more expensive for them to supply to their customers, and their customers are getting mad. And in some cases, their customers are turning their back on them, saying, I can’t afford you anymore. And again, that’s part of the weakening economic story.
“An inverted [U.S. treasury] yield curve is a good indicator of recession, and we still have an inverted yield curve. It’s been murder since 2022, so I’m not giving up on the recession, not because I’m tired of being wrong all the time, but I keep attracting more than 400 of you to these webinars. I don’t get it.
“Here’s my take. We’re still a society currently facing high foreign costs with a national debt of $35 trillion, [and it’s] climbing all the time. So the federal government’s paying more interest. Households are paying more interest. Businesses are paying more interest. And, yeah, interest rates are going to fall a bit between now and the beginning of next year, but still high compared to where they have been pre -pandemic.
“I still believe there’s a chance of a very mild recession in early 2025.”
Q&A
People asked Basu to explain the dissonance between the relatively low inflation rate of 3.4% versus the opposing fact that people are still feeling financially strained.
“That is the perfect use of the word dissonance, because that’s exactly what it is, this inconsistency between what government officials say, and others, who keep saying inflation is falling, and yet the average American is saying, ‘I don’t see it, I don’t feel it.’
“Inflation is the pace at which prices are changing. If you look at the average price level since Feb. of 2020, the overall price level based on the consumer price index is up about 23% in four years.”
That more realistic number makes a 2025 recession seem all the more realistic as well.
