From the desk of Gene Lilly:
Happy 4th of July! We hope everyone’s summer is off to a good start. Our office will be closed this afternoon Friday, July 1st, and all day Monday, July 4th. We hope everyone has a great weekend celebrating with family and friends.
Our second newsletter discusses the construction market into 2023 when many economists expect us to fall into a recession. How do we deal with ongoing issues in the supply chain, price inflation, and labor shortages? As we go into the holiday weekend, it’s hard to believe that over two years after the first cases of Covid-19, we are still dealing with impacts. The initial impact of the pandemic was softened by government funding. The aftershocks of inflation and workforce participation could be rough. One historically proven formula for tough construction economies is to have spades of patience and capital.
These economic conditions are bound to affect the surety and banking industries as well. Rising interest rates and inflation are going to make it more difficult for businesses to obtain credit. If you would like to know more about how the economic forecast may impact your bonding, please contact us.
Economic Volatility and Patience
Where is the construction industry going in the next 18-24 months? We aren’t positive where we will end up, but we can guarantee that the journey will have lots of difficulties. This article written by Dr. Tom Schleifer explores the current economic markets in relation to construction. In his words, the current markets are already volatile and quickly approaching disorderly (or probably already there). You can count on one hand the number of times the world economy has approached this level in history.
So how did we get here in the first place? A combination of labor shortages, pandemic shutdowns limiting supply chains, inflation, and conflict in Eastern Europe have created the perfect storm for unprecedented disruption to the economy. While we are not in a recession yet, most experts in the economic and finance fields expect one in 2023. Construction is already an inherently risky business. The addition of these factors makes a company’s risk mitigation plan more important for the foreseeable future.
Dr. Schleifer uses one word to summarize the approach contractors should take to navigate the next 18-24 months – Patience. Managing a successful construction company is hard enough in a stable market, let alone one that is full of constant unknowns and disruptions. Being patient in these times means saying no to that new opportunity that presents a little more risk in profit margin, duration, or financing. It’s taking the time to ensure profits are being maintained from start to finish in your current projects. It’s possibly putting a hold on new capital expenditures with rising interest rates or delaying the addition of a new work crew. Plenty of work is going to be available over the next several years. The infrastructure bill has guaranteed us that. If market conditions dictate that you can’t perform that work profitably, it may be time to stay patient and ride out the storm. Focusing on improving process efficiencies within the company while taking on profitable projects for familiar owners in familiar locations will help mitigate your risk. The work is going to be there still when we get out of this mess.
Patience – Dr. Tom Schleifer
2022 AGC Annual Convention
We took part in another successful AGC Convention in February as a breakout session presenter with Woods Aitken Law Firm and sponsor of the PAC auction. The presentation discussing supply chain issues and price escalation in the construction market was very timely as these issues have continued longer than expected. Link to the presentation video HERE
The PAC auction was very successful as we exceeded the goal of raising $50,000! Thanks to everyone who came out to support AGC and it’s goals.