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Are we headed for recession?

27 July, 2022

Is there a recession coming? It depends on who you talk to as well as your industry. An article published by PaintSquare News reports that an analysis of data published by the U.S. Bureau of Labor Statistics’ Producer Price Index shows that there is not a definite risk of recession for the time being, however that may change later this year or in 2023. An economist quoted in the article states that developers “feel that projects still have the hope of moving forward,” but that this may change if higher interest rates erode business and consumer confidence.

An article published by Reuters noted that in June, employment in the U.S. had risen higher than expected and that wages had risen as well — that the economy was essentially plowing ahead despite the fears of a recession. The article continued that Labor Department statistics reported no indication that companies were reducing hours for their workers and that construction payrolls have increased by 13,000 jobs. (According to an article published by For Construction Pros, residential construction lost 4,100 jobs in June, but non-residential construction added 16,500.) These types of statistics have led many economists to believe that any economic downturn will be relatively mild.

Not everyone agrees. An article published in The New York Times suggests that a combination of inflation, high interest rates, and other grisly economic factors will more than likely lead the country into a recession, but their sources run the gamut on the prediction meter. Financial institutions such as Deloitte and Morgan Stanley say there is a low probability of recession, JP Morgan gives it a moderate chance; Deutche Bank and Wells Fargo say it’s well on the way.

Meanwhile, a report by Houzz is squarely in the middle. An organization that tracks the residential renovation market, Houzz reports that construction, as well as architectural and design services, have reported more increases that decreases recently, but it continued that homeowners are hesitant to move forward with projects as they’re waiting to see where the economy goes from here. The has resulted in a decrease of backlogs across the industry.

For more insight into which segments are predicted to increase and which are predicted to decrease, check out our interview with Danushka Nanayakkara Skillington, AVP of Forecasting & Analysis for the NAHB.

Recession-proof your business

All that said, it seems like we won’t know what the future holds until it gets here. Many bloggers have suggestions to help people in the trades keep the doors swinging in a recession. ConstructConnect shares these tips from an article by editor-in-chief Kendall Jones:

  • Don’t rely on a backlog, as people may cancel or postpone projects if their financial situation changes. You may need to strategize to keep work coming in by focusing on niche areas, offering more services to your existing clients, and diversifying your services.
  • Offer competitive wages, especially for your best employees. As labor has been hard to source, you don’t want to see them poached. 
  • Cut down spending; reassess paying for both equipment and employees that sit around not doing any work. Take a look at how to cut down on losses and increase productivity.

A blog published by CapitalPlus adds some ideas from there:

  • Play to your strengths. This is the time to let people know what makes you stand out from your competition.
  • Know your numbers. This is a must all the time, but during hard times, the better you know the exact price of labor and materials and the exact profit margin, the more you can plan your way through a recession.
  • Pay your bills. It’s more important during a recession, as a bill backup can be even harder to get out of.

Lien on me

Sierra Rogers from Software Advice reminds contractors to protect their lien rights. If you do a project for someone who won’t pay or goes under, it might be the only way you have a chance to claim your payment. “When it comes to settling payment problems in the construction industry, there is nothing more effective than the mechanic’s lien process. These liens work for many reasons; they get the construction lender and property owners involved, they can cause a contract breach, and they’re extremely difficult to challenge,” Rogers states. Plus, the threat of a lien may encourage a prompt payment.

Also, the article advises, make the best use of your available personnel and equipment. Look over your project history and see what projects were most successful, then try to continue with this type of work. An examination of the scope, time frame and budget of these projects can help you plan successfully moving forward.


 

Comments

Recession? (not verified)

wellsj@netzero.net

Are you serious? Facts we know: there is record, runaway inflation. There is many anti-business legislation and overeach on regulations. There is apathy in the employment sector with far too many government handouts encouraging people to not work.. resulting in rampant unemployment. A more pertinent question might be, " Why wouldn't there be a recession?"

Fri, 07/29/2022 - 07:40 Permalink

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