The National Association for Business Economics released survey results in August 2019 that sent ripples through the financial and construction industries. According to the report, 38 percent of surveyed economists forecasted the economy would enter a recession by 2021, with a strong majority of 74 percent expressing sufficient concern about the risks of certain economic policies that they expected a downturn by the end of 2021. For construction firms, understanding these recession signals and preparing accordingly can make the difference between weathering the storm and shutting down operations. Housing Remains Sound During Economic Recession Strategies for builders offers additional perspective on how residential construction has historically performed during economic contractions.
Understanding the NABE Survey Findings and Economic Indicators
The National Association for Business Economics survey represents one of the most comprehensive outlooks on the U.S. economy from the professionals who track it most closely. The August 2019 report revealed a significant shift in sentiment compared to the February survey conducted earlier that year.
Key Survey Results at a Glance
| Metric | February 2019 Survey | August 2019 Survey | Change |
|---|---|---|---|
| Economists expecting recession by 2021 | 25% | 34% | +9 percentage points |
| Economists expecting recession by end of 2021 | Not reported | 74% | Majority concern |
| Economists finding tax cuts “too stimulative” | 71% | 51% | -20 percentage points |
The data shows that while fewer economists viewed the 2017 tax cuts as excessively stimulative by August 2019, a much larger share had come to expect a recession within the following two years. This divergence suggests that other factors beyond fiscal policy were driving recession concerns.
Political and Policy Factors Driving Recession Fears
The survey results reflected a broader uncertainty about trade policy, global economic slowdowns, and geopolitical tensions that characterized the late 2010s. Several specific factors contributed to the pessimistic outlook among economists:
- Trade disputes and tariffs: Ongoing trade tensions between the United States and China created supply chain uncertainty that weighed on business investment decisions.
- Global economic slowing: Economic growth in Europe and Asia had begun to decelerate, threatening export markets and global demand.
- Inverted yield curve: The bond market had flashed warning signals, with the yield curve inverting in a pattern often preceding recessions.
- Manufacturing contraction: The manufacturing sector showed signs of slowing, with purchasing managers indices indicating contraction in several regions.
President Trump at the time dismissed recession concerns, stating publicly, “I don’t think we’re having a recession. We’re doing tremendously well. Our consumers are rich. I gave a tremendous tax cut and they’re loaded up with money.” He also called on the Federal Reserve to cut interest rates by at least a full percentage point to further stimulate the economy.
How Recession Predictions Affect the Construction Industry
Construction is often among the first industries to feel the effects of an economic downturn. When recession fears rise, project owners delay capital expenditures, lenders tighten credit, and consumer confidence drops. Understanding these dynamics helps contractors and builders prepare proactively.
The Labor Paradox: Work Available but Workers Scarce
Ken Simonson, chief economist for the Association of General Contractors of America (AGC), highlighted an unusual dynamic during this period. Demand for construction projects showed no signs of diminishing in most states, and contractors continued to increase headcount whenever they could find qualified workers. However, job openings at the end of June 2019 were the highest ever recorded for that month, suggesting that contractors were struggling to find the labor they needed.
This labor shortage created a paradox for the construction industry:
- High demand for projects kept backlogs full and revenue flowing for most contractors.
- Severe labor shortages limited the amount of work firms could actually complete.
- Rising wage costs squeezed profit margins as contractors competed for a limited pool of skilled workers.
- Project delays became common as firms could not staff all their commitments simultaneously.
AGC officials pointed to the pressing need for Congress and the administration to fund career and technical education programs and enact immigration reforms that would allow more people with construction skills to enter the country legally. These measures, they argued, would help address the structural labor shortage that made the industry vulnerable to any economic shock.
Financial Market Reactions and Interest Rate Implications
The recession predictions followed a steep drop in financial markets that rattled investor confidence. For construction firms, financial market volatility carries direct implications:
- Access to capital for new projects becomes more expensive and harder to secure.
- Bond rates affect the cost of construction loans and equipment financing.
- Public infrastructure funding can be delayed when government budgets tighten.
- Private developers become more cautious about launching speculative projects.
The call for Federal Reserve interest rate cuts reflected a broader hope that monetary policy could stave off or soften a potential recession. Lower rates reduce borrowing costs for construction projects and can help sustain housing demand, but they cannot solve structural issues like labor shortages or trade disruptions.
Practical Strategies for Construction Firms Facing Economic Uncertainty
When economists signal a potential recession, construction firms should take concrete steps to strengthen their operations and financial position. The firms that survive economic downturns are typically those that prepared before the downturn arrived. Recession Survival Tactics for Home Builders Lessons From industry survivors provide additional insight into practical preparation strategies.
Financial Preparedness and Cash Flow Management
Cash flow is the lifeblood of any construction firm, and it becomes even more critical during economic uncertainty. Consider these financial strategies:
- Build a cash reserve equal to at least three to six months of operating expenses to cover gaps between project payments.
- Review and renegotiate credit terms with suppliers and subcontractors before conditions tighten further.
- Diversify your project portfolio across different sectors (residential, commercial, infrastructure) to reduce exposure to any single market segment.
- Audit overhead costs and identify nonessential expenses that can be temporarily suspended if revenue declines.
- Establish or strengthen relationships with multiple lenders to ensure access to capital if your primary bank tightens lending standards.
Operational Efficiency and Workforce Retention
While recession predictions may suggest cutting staff, the construction industry’s labor shortage means that laying off skilled workers during a downturn could leave firms unable to staff projects when conditions improve. Consider these approaches instead:
- Cross-train employees so they can work across multiple trades or project types, increasing flexibility.
- Invest in technology that improves productivity, allowing you to accomplish more with the same workforce.
- Focus on safety and quality to reduce rework and insurance costs that eat into margins.
- Develop strategic partnerships with subcontractors and suppliers to secure priority access to resources.
Smart material procurement also becomes essential during uncertain times. The right selection of materials can significantly impact project costs and timelines. Selection of Construction Materials directly affects both the budget and the durability of completed projects, making thoughtful material choices a critical part of recession preparation.
Long-Term Planning and Structural Considerations
Recessions eventually end, and firms that plan for the recovery phase position themselves to capture market share when conditions improve. Construction businesses should use periods of uncertainty to strengthen their long-term positioning.
Project Selection and Risk Assessment
During periods of predicted recession, not all projects carry the same level of risk. Contractors should evaluate potential projects using these criteria:
| Project Type | Recession Resilience | Risk Factors |
|---|---|---|
| Public infrastructure | High | Government funding delays, regulatory changes |
| Healthcare facilities | High | Specialized requirements, longer timelines |
| Multifamily housing | Moderate | Financing availability, rent growth slowdown |
| Commercial office | Low | Tenant demand sensitivity, speculative development |
| Single-family residential | Moderate | Interest rate sensitivity, buyer confidence |
| Industrial and warehousing | High | Supply chain dependencies, e-commerce demand |
Firms that can pivot toward recession-resilient project types while maintaining their core competencies tend to fare better during economic contractions. This may require investing in new certifications, training, or equipment to qualify for infrastructure or institutional work.
Structural Design and Material Optimization
One area where construction firms can find meaningful cost savings without sacrificing quality is in structural design and material selection. Optimized structural systems reduce material waste, lower labor costs, and shorten project timelines. For example, Roof Trusses Selection has a direct impact on material efficiency, installation speed, and overall project cost. Choosing the right truss system can significantly reduce on-site labor requirements and material waste.
Key considerations for structural optimization include:
- Evaluating alternative framing systems that use materials more efficiently.
- Specifying locally sourced materials to reduce transportation costs and lead times.
- Using prefabricated components to reduce on-site labor requirements and improve quality control.
- Designing for repeatability and standardization to maximize purchasing power and minimize custom fabrication.
Building a Recession-Resilient Business Model
The NABE survey results serve as a reminder that economic uncertainty is a recurring feature of the business cycle, not an exception. Construction firms that build resilience into their operations are better positioned to survive and even thrive during downturns. Key elements of a recession-resilient business model include:
- Geographic diversification: Operating in multiple markets reduces exposure to regional economic downturns.
- Service diversification: Offering both new construction and renovation/repair services provides revenue stability as market conditions shift.
- Strong client relationships: Repeat clients and long-term contracts provide a revenue base that is less vulnerable to market fluctuations.
- Conservative financial management: Avoiding excessive debt and maintaining healthy profit margins creates a buffer against revenue declines.
- Continuous workforce development: Investing in training and apprenticeship programs ensures access to skilled labor when the cycle turns upward.
Economic forecasts may shift and change, but the fundamental principles of sound business management remain constant. The 2019 NABE survey underscored that even when current conditions appear strong, forward-looking indicators can reveal vulnerabilities that require attention. Construction firms that heed these warning signals and take proactive steps to strengthen their operations will be better prepared for whatever economic conditions lie ahead.