by Patrick Hogan, CEO, Handle.com
A country’s economy and its construction industry have a strong and unique relationship. The construction industry plays a major role in driving economic growth in both developed and developing countries and has a significant impact on a country’s GDP. Construction produces infrastructure that affects a country’s productivity and its people’s quality of life. It is also labor-intensive, so in an ideal industry situation, a significant part of the country’s construction workforce is active. The existence of links between construction and many other sectors means that the industry’s contributions to a country’s growth go beyond the direct contribution of construction activities.
Consequently, the construction industry is also greatly affected by economic downturns. It is one of the sectors that was critically hit by the 2008 global recession, with more than 150,000 construction firms closing down and around 2.3 million workers laid-off, retired, or moved on from the industry. While the recession officially ended in 2009, the construction industry took nearly a decade to bounce back and reach the numbers it had before 2008.
Today, multiple factors threaten the economy and the uncertainty has led some sectors to a slowdown. However, the construction industry continues to be robust and is still one of the primary drivers of economic growth.
Hope Amidst Economic Uncertainty
The US economy is slowing. According to the US Department of Commerce, the economy grew a seasonally adjusted annual rate of 1.9% but its momentum has decelerated. The country’s GDP is still relatively strong, outperforming big players like Germany and Japan. However, analysts and investors expect the economy to slow through the end of the year up to the start of next year.
The slowing economy is largely due to the decline of business investments and the effect of the trade conflict with China. Business investments fell by 3% after dropping 1% in the previous quarter. This has also increased the price of Chinese imports, significantly impacting manufacturers and retailers and prompting firms to delay projects during this time of uncertainty.
Despite the economic slowdown, the construction industry is a ray of hope as it beats expectations. Construction spending rose by 0.5% in September, largely due to both government and private residential projects. Spending on single-family home construction rose 1.3%, and with lower mortgage rates compared to a year ago, residential construction is not going to slow down soon.
The US-China trade war and reduced business investments provide a level of uncertainty high enough for some industry leaders to anticipate a looming recession. But with the growing confidence of contractors that is apparent in the rise in construction spending, it is clear the industry will continue to drive economic growth.
Propelling the Economy Forward
Because of the strong relationship between the economy and the construction industry, it is important that industry leaders address the shortcomings of the industry’s traditional ways to move the economy and the country forward. They must ride the momentum of the industry’s recent growth and devise new strategies to improve the industry’s—and the economy’s—future.
Technology and Automation
Technology is a major disruptor in the construction industry. Currently, the industry is one of the least digitized sectors, second only to the agriculture sector. However, the recent trends are showing many firms incorporating new construction technologies how to better manage and augment operations.
Automation is one of the trends that are changing the industry today. Many tasks in the construction industry are repetitive, time-consuming, and downright dangerous. Automation enhances operational efficiency by reducing the time these tasks take and improves employee safety by letting them do their tasks at a safe distance.
Drones are one of the best examples of automation tech used in the industry today. They are useful in pre-site inspections, taking much less time to finish the job compared to a group of surveyors. Moreover, there is less exposure to danger as drones can navigate the riskiest spaces on a site. Drones are also used to monitor worksites without the need for active supervision.
Documentation is another pain point in the industry that automation aims to address. From the initial planning to invoicing, paper has dominated every aspect of the construction process. However, contractors are moving on to automating some of these processes to save time. Having a centralized platform for documents that project stakeholders can access and collaborate on will minimize the need for RFIs that contribute to delays. Automation also improves all documentation efforts, from estimation and project management to billing and lien management.
Better Workforce Management
The biggest issue that the construction industry faces today is the lack of skilled workers hampering many firms’ ability to meet the demand for construction work.
As the current workforce is aging and many workers from the boomer generation will retire soon, the industry is having difficulty attracting younger generations. The common perception of construction work among them is negative. On top of this, pressure from the current federal government stops the industry from tapping the immigrant workforce from Mexico and nearby countries.
Addressing the current construction labor crisis requires a careful approach from industry leaders. The first thing to do is to change the mindset of the younger members of the population regarding the industry. Better job descriptions, competitive compensation and benefits, and a clear career track are some of the features that construction companies can implement in the short term.
For the long term, firms should focus on employee engagement, diversity, and safety. It is no secret that the industry’s negative image comes from stressful and dangerous work. The oft-cited sexism in the male-dominated sector is also not doing it any favor. The industry should be committed to prioritizing safety, and this includes not only workplace safety but also the employees’ psychological wellbeing and safety from discrimination.
Data-Driven Business Model
The construction industry is teeming with data, from basic schedule information and employee details to project plans and invoice information. However, the industry’s reliance on paper has left these data largely unstructured. For many construction firms, these data are untapped resources that could provide insight into their operations and let them make better decisions.
To create a data-driven business, construction firms need to have quality data in the first place. The systems and tools in place need to collect accurate, complete, and timely data for them to be viable for decision-making.
Data accessibility is another concern. Stakeholders, especially employees, need to be able to access the data in order to make decisions more easily and faster. Finally, standardization is the process that the industry urgently needs to implement when it comes to data collection and manipulation. There is often a disconnect between contractors and subcontractors because each party uses systems that are incompatible with those of others. If these tools and systems are standardized, there is a much higher chance for a construction project to succeed.
Final Thoughts
Despite the uncertainty that the US economy presents and the many issues that persist in the industry, many contractors are optimistic about their ability to find and win jobs in the near future. It is refreshing to see this confidence that is apparent in construction spending beating expectations. As the US economy slows down, it is up to industry leaders to continue looking for new opportunities, finding new strategies, and modernizing the construction process in order to drive the economy forward.
About the Author:
Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.
