Market update

In today’s construction world, data is king, helping contractors make informed business decisions that connect the field to the back office through a single set of unified data, improving workflows and productivity while also increasing profits. While these insights are clearly valuable to individual contractors, their value can be even more helpful when aggregated and analyzed collectively for the sake of the entire industry.

That’s what Viewpoint, a Trimble company and construction ERP leader has started doing with data pulled from roughly a 1000 clients from Jan 1 – March 31, 2021, which it recently published within its Quarterly Construction Metrics Index: Q1 2021. The Index, which provides trends related to project starts, contract values, hiring metrics and cash-flow movement, is designed to help industry leaders better understand the current construction landscape and assess how their own companies are tracking against industry averages. So, what do the trends tell us about the first quarter of 2021, and how can contractors use that information to their benefit?

Taking a quick look back, we all know that 2020 was a difficult year for the construction industry with project starts down 30 percent, which led to 30 percent less hiring and a 25 percent reduction in contract values. Chief Economist Richard Branch from Dodge Data and Analytics echoed these numbers within an op-ed in Commercial Construction & Renovation, stating that from 2019 through Q2 2020, their data demonstrated that the total value of construction starts fell 22 percent.

But not all hope is lost. Several leading indicators suggest that cautious optimism is justified when looking at Q1 2021 data. Below are a few highlights from the index, and what they mean for your business as we look ahead to 2021. To automatically receive the next Quarterly Construction Metrics Index, sign up using the URL at the end of the article.

Project starts remain stalled but show promise
In the construction business, project starts are the crux of the industry. Without them, you can’t hire employees, bid on contracts or spend money on materials. While the residual effects of the pandemic are still being felt, backlogs, or the rate of projects in the pipeline, still remain about 20 percent below where they were in the first quarter of 2020. However, data suggests that backlogs are slowly rebounding as there are currently 26,000 pending projects in the Q1 2021 backlog compared to 30,000 pending jobs in Q1 2020, a 15 percent decrease.

When broken out by vertical, heavy highway and civil projects had ten percent more pending projects in March 2021 than March 2020. This vertical is largely funded by federal and state governments or municipalities whose budgets have already been allocated, with projects set to start accordingly, which could explain why start figures are increasing.

General contractors had ten percent fewer pending projects in Q1 2021 than Q1 2020, which could indicate that they’re lowering their risk threshold by taking smaller jobs, helping to account for their lowered project starts.

Specialty contractors had the smoothest ride in 2020, which is why it’s surprising to see that they had 25-35 percent fewer pending projects in January and February 2021 as compared to January and February 2020. Last year they were able to pick up work left behind by general contractors and were likely to have a service business so their lowered project starts might be the abundance of previous work finally catching up with them.

There is also hope that an influx of new projects could start following the passage of The American Jobs Plan, which would provide contractors with new projects to bid on, funded by significant government spending. Viewpoint has a Construction Infrastructure Resource Center that is a good way to keep up with the latest developments around the infrastructure bill.

Contract values declined, mirroring project starts
Contract values tend to mirror project trends so as projects decline, so too do their values. This was seen in 2020, with the trend continuing in Q1 2021, which saw a 52 percent decline as compared to Q1 2020. This was seen across all three verticals during Q1 2021, with specialty and general contractors experiencing 50 percent declines in contract values, while heavy highway and civil saw a 30 percent decline.

The good news is that contract values have largely held steady since October 2020, but lower contract values demonstrate that contractors are still trying to mitigate risk, indicating that there is still uncertainty in the market. Lower Q1 2021 contract values may also be a function of increased bidding competition for fewer available projects.

Net hiring increased throughout the quarter
Hiring is largely contingent upon project starts so when projects get stalled or cancelled, employees are directly impacted. However, thus far in 2021, hiring has been net positive, which means more employees were hired than fired, though it is still 12 percent below what it was a year ago. That being said, hiring has steadily increased throughout the quarter with net employment up 45 percent in March 2021 as compared to March 2020.

Hiring was down across all three verticals, with general contractor employment down 50 percent in January and February as compared to a year ago, which was mirrored by heavy highway, civil and specialty contractors who saw the same decline percentage. Hiring is likely to remain down in 2021, although there may be an increase in the warmer months, which is typical for the industry.

Geographically, hiring has largely been net positive, with the Southeast experiencing the largest increase — 103 percent as compared to a year ago — which was followed by the Northeast, which also saw a 75 percent increase. Looking ahead, the Southeast and Northeast are likely to rebound faster given their more consistent employment records.

Cash flow varied by vertical
Cash flow can be an indication of market confidence as it demonstrates whether contractors are willing to spend money on projects. Looking at Q1 2021, heavy highway and general contractors remained cash positive, meaning they held onto cash vs. spent it, while specialty contractors were cash negative, spending roughly 150 percent more in Q1 2021 as compared to Q1 2020. This could indicate that specialty contractors are more confident that new projects will soon be underway.

Anne Hunt is the director of data and analytics for Viewpoint, a Trimble company that delivers leading-edge construction management software. She leads the incubation and innovation of new data first services to revolutionize how clients and the construction industry at large operates.