Home Posts tagged 2020 recession
Construction

Continued Momentum

 

The engineering and construction industry has made a significant recovery from the 2020 recession, but it has also experienced multiple headwinds that are expected to persist. According to a report by Deloitte, 2022 should be another rewarding — but challenging — year, and the industry looks to be poised to capture growth opportunities.

The 2020 recession was among the shortest ever, but its impact continues to be observed across both the larger U.S. economy and the engineering and construction (E&C) industry.

In 2022, as we move into the second year of recovery, the industry has a big role in supporting the nation’s growth plan. The Infrastructure Investment and Jobs Act (IIJA), with investments across healthcare, public safety, and other public infrastructure, is expected to bode well for E&C firms and is likely to accelerate recovery across the non-residential segment. The residential segment is expected to stay strong and exhibit similar activity as it did in 2021.

“The 2020 recession was among the shortest ever, but its impact continues to be observed across both the larger U.S. economy and the engineering and construction industry.”

The industry has increased its investments in digital, including through mergers and acquisitions (M&A), as it prepares to shift toward connected construction capabilities. These technologies can help E&C firms support initiatives such as smart cities, urban air mobility, and climate-change programs, while helping to enhance internal operational efficiencies, reduce costs, and improve margins. Thus, 2022 is likely to be an exciting year for the engineering and construction industry, and Deloitte’s annual outlook explores five key themes to watch closely.

 

1. Several factors position the industry for strong growth amid the headwinds. The industry responded very well during the pandemic and has come out strong in the recovery period. Total construction spending recovered and peaked at $1.57 trillion in July 2021, 12% higher than 2019 average levels. In a recent survey, 91% of E&C respondents characterize the business outlook for their industry as somewhat or very positive, 23% higher than last year. Driving this business confidence is the expected strong performance of the residential segment and growth from the non-residential segment due to the $1 trillion IIJA.

Looking into the two segments in more detail, residential activities continued to stay strong despite rising material prices and the spread of the coronavirus Delta variant. In contrast, non-residential segment spending growth remained weak for much of 2021. Spending across educational, office, transportation, healthcare, and commercial facilities observed the largest year-over-year decline in July 2021.

 

2. Supply-chain disruption and sourcing challenges will likely affect project delivery and margins. During the second half of 2020, the pandemic exposed the vulnerabilities of global supply chains. Supply issues were expected to stabilize moving into 2021 as both global production resumed and supplies normalized. However, pandemic-induced supply shortages persist, affecting key materials such as lumber, paint and coatings, aluminum, steel, and cement, among others.

The impact of this crisis is twofold. The first challenge is the lack of materials; per an Associated General Contractors of America (AGC) survey, 75% of E&C firms indicated project delays due to longer lead times or shortage of materials. Furthermore, 57% reported delivery delays, indicating that the industry has difficulty predicting when materials would arrive.

The second impact is sharply increased costs; during the first seven months of 2021, the prices of critical construction materials observed double-digit increases every month. Overall, supply-chain disruptions and volatility are expected to be among the biggest challenges in 2022, and the firms that can navigate through them will likely emerge as winners.

 

3. Connected construction will help the industry unlock new value streams. The industry landscape is rapidly evolving as engineering firms, contractors, and participants across the value chain realize the benefits of, and increasingly deploy, connected construction technologies. These technologies can help bring assets, people, processes, and job sites onto one platform, making everyone work smarter, reduce downtime, optimize asset utilization and efficiency, and gain greater visibility into operations.

At the core of connected construction are emerging technologies and the data and advanced analytics that these new capabilities can enable. As the industry moves toward connected construction, developing data, analytics, and user-based insights capabilities could be critical. In 2022, connected construction will likely be a catch-all for major digital investments to connect, integrate, and automate operations and bring the entire value chain onto a secure, intelligent infrastructure.

 

4. M&A will help build broad-based capabilities. In 2020, most E&C firms were focused on being risk-averse and conserving cash to maintain liquidity. However, 2021 provides a stark contrast, as transaction levels for the first nine months were already 152% higher than the full year 2020 and 10% higher than all activity in 2019. The U.S. E&C industry ramped up M&A activity, registering $16 billion in deal value, during the first eight months of 2021. At this pace, the industry is likely to exceed the $20 billion deal value mark by the end of the year.

E&C companies have also shown renewed interest in technology and telecom targets to gain faster access to new digital capabilities and solutions. Between August 2020 and August 2021, U.S. E&C firms acquired as many as 27 targets across the software, electronics, technology consulting and services, and motion-picture fields. A move in the right direction, this is further anticipated to pick up pace in 2022 as E&C firms work toward acquiring technologies to help develop a connected, integrated, and automated operations foundation.

 

5. Firms will continue to grapple with labor shortages as the workforce landscape evolves. Emerging from the pandemic, the biggest question on the minds of most E&C firms was how to restart work at job sites safely. Surprisingly, while the industry quickly implemented the required safety standards, it is still trying to overcome the challenge of attracting workers. The impact of not filling job openings can negatively affect E&C firms in more ways than one, including project delays and cancellations, projects being scaled back, inability to respond to market needs, losing project bids, and failing to innovate, among others.

Another factor compounding labor shortages is a lack of qualified candidates. This skills gap is partly driven by industry advances into integrating digital technologies with key workstreams to further enhance productivity, efficiency, and worker safety. As we move into 2022, adapting existing talent strategies and forming new talent-management and workforce-experience strategies could be critical to navigating workforce challenges.

buy ivermectin for humans buy ivermectin online
buy generic cialis buy cialis
payday loans online same day deposit 1 hour payday loans no credit check