Insights

Economic Impact of the Pandemic in the Construction Sector

Frankly, the COVID-19 pandemic has had an effect on nearly every sector of the economy. The ravaging pandemic didn't spare even the construction sector, especially in the US. Construction companies' activities were reduced, people lost jobs, and it became difficult to get raw materials.

Fortunately, most countries are opening up with several construction businesses and activities picking up. Interestingly, there are several positive impacts the pandemic has brought, especially to the construction sector. First, the industry has been able to utilize the locally available raw materials, encouraging local industries' growth. Plus, they have also been able to evaluate their construction spending, encouraging them to make wise decisions. Well, here's a detailed breakdown of all these.

Economic Impact of the Pandemic on Construction Companies

It Has Encouraged the Use of Locally Available Raw Materials

Ordinarily, for any construction activity to occur, there calls for enough raw materials on-site to prevent bringing the work to a halt. However, this was not the case during the pandemic. Many businesses had closed down and most nations enforced lockdown measures.

The lockdowns meant that countries that relied on imports had challenges getting their products on time even as people interactions were discouraged. Countries like the US, whose construction sector heavily depends on raw materials from other countries, had problems during this period. This is despite the 1933 Buy America Act that requires the country to have at least 50% of the raw materials produced in the US.

This has boosted the use of locally available raw materials as most companies are now looking for an affordable alternative source of raw materials. Remember, the imported construction raw materials had become expensive to import and took time to reach their destinations. So, in the long run, the upcoming local industries could now grow. This encouraged local investors to come out and help improve the country's economy.

The Number of Construction Projects

Another undesirable impact the pandemic had on construction companies was the reduced number of projects. Most investors resorted to halting their construction plans until later when their countries would recover from the pandemic. Some also feared investing during this time because of the uncertainties brought by the novel virus, such as the fear of it spreading.

Fortunately, most construction projects are back after most economies reopened and investors are ready to invest again. Thus, unlike before, when the construction sector recorded a low-profit return, companies can now smile at the bank due to the boost offered to the national economies.

Absorbing Large Numbers of Unemployed Labor

Most nations have many strict gathering policies. Hence, it was challenging for a construction company to have several workers on-site. This meant that the operating companies had to work with fewer workers. This was overwhelming and they took more time to complete projects. In fact, according to a study by AGC and Autodesk, about 60% of the construction companies had to cancel or reschedule their projects because of the reduced workforce brought by the pandemic. 

Most people are now increasingly taking the COVID-19 vaccines and other countries are resuming normal operations. So this is no longer a severe threat. Instead, most construction companies now have a hard time absorbing the huge numbers of unemployed people. Did you know that a record-breaking 4.3 million Americans quit their jobs in August 2021? Yes, we're in times of massive resignations, meaning that there's a huge talent pool.

Understanding of Construction Spending

The pandemic saw many investors experience anxiety, making them reduce their investment budgets and projects. When little or no money is invested in the sector, the economic implications are felt nationwide from those actively involved in the construction industries, such as suppliers and distributors, to the government.

The pandemic wasn't showing any signs of ending. Hence, the construction sector had to look for ways to cope. For instance, some construction companies are looking into incorporating construction accounting services to help them reduce the financial risks that come with different projects. The goal is to help keep their finances under control while trying to implement other possible cost-cutting measures.

Prices of Construction Materials

At the pandemic's beginning, the demands for raw materials reduced as most projects stopped, were canceled, or postponed. Again, importing some of these raw materials became trickier and expensive as there were lockdowns in several countries. For example, most steel mill companies had to reduce their production to avoid going at a loss. 

However, as countries are opening up and construction activities resume, the prices of these materials have started going up. When the prices of construction materials are fair, the suppliers and the manufacturing industries will not go at a loss. This is a plus for local industries, which are now the main suppliers of raw materials to most construction companies. According to the World Bank, various commodities have started to stabilize with the prices of metals expected to be back as before the pandemic.

The Rise in Demand of Construction Materials

Suppliers incurred many losses during the pandemic, forcing some of them to opt-out of business. Those who've braved the pandemic have had to bear the high commodity prices. This can be tricky to foot with no stable income or revenue. In addition, various manufacturing companies closed down because of COVID-19. This meant the amounts of materials produced also declined.

But as countries recover and the construction sector finds ways to operate, the demand for the materials is steadily rising. When the demand for commodities is higher than the amount available in the market, the expectation is that the prices will rise, and consequently amplify profits. This is to the advantage of local construction suppliers and industries who will likely recover the losses incurred during the pandemic before the equilibrium is attained.

Parting Shot

The world has now begun to recover from the pandemic. Construction companies need to look for the best ways to survive and get on top of their game again. One of the ways to achieve this is to work closely with a construction accounting company to help keep your finances under control, mitigate risks and meet your business objectives.

Feel free to contact us and see how we can help your business get back to its feet amid the pandemic.