Anirban Basu, chief economist for Associated Builders and Contractors, has the inside scoop on a potential recession. He recently provided ConstructionDive with an interview on that very subject--and Construction Executive sat in on the conversation.

If we entered a sustained recession, what would be the likely pain points for construction contractors?
Over the past few years, the challenge for contractors has been that demand for their services has often exceeded their capacity to supply them. A recession would turn things in a different direction. Contractors would find themselves having to compete more aggressively for work, and all factors equal, that would squeeze profit margins. On the other hand, wages would expand less rapidly and construction input prices could decline or stagnate. Nonetheless, recession would be most unwelcome, and what contractors would probably prefer is an economic soft landing accompanied by improved supply chain dynamics.

How would it affect their ability to retain the workers they've fought so hard to hire?
A recession would improve the ability to retain workers. In the past, contractors have been willing to carry extra team members even during downturns, with the understanding that rehiring talent can be extraordinarily difficult. Contractors would likely respond to a downturn by trimming their least productive personnel but would strive to keep their most talented team members. A recession would weaken the labor market, rendering workers more concerned by job security. Under those circumstances, they could accept lower compensation increases.

What can construction companies do to prepare themselves now, should a more pronounced slowdown develop?
If contractor leadership is convinced that a downturn is coming, the primary goals are to preserve cash and to shore up financial relationships (e.g., bankers, insurers). This represents a time to determine whether the firm can cut costs and whether it makes sense to attempt to negotiate larger lines of credit.

In past economic downturns, what has separated the winners from the losers?
The survivors of downturns are generally those who act quickly during emerging economic crises. They cut costs rapidly and strive to pay down debt so their balance sheets could handle several quarters of diminished revenues. If a downturn arrives, it is likely to primarily impact firms engaged in private work (e.g., commercial construction). Contractors that specialize in public work should be fine given the significant amount of infrastructure investment to transpire during the years to come.

What would it mean in the mergers-and-acquisitions space? Who would buy and who would get swallowed?
With respect to mergers and acquisitions, there are countervailing forces at work. Generally, a tougher economy produces fewer mergers and acquisitions. That's because such deals require confidence among dealmakers and the availability of financing tends to be truncated during moments of economic stress. That said, once economic recovery begins, deal making generally takes off. Financing and confidence are restored, and many firms find themselves weaker financially after the downturn and therefore are more willing to consider being acquired.