By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE
The prolonged, unprecedented nature of the COVID-19 pandemic makes it difficult to predict and project when and how the U.S. economy will recover.
Scott Colbert, executive vice president, chief economist and director of fixed income for Commerce Trust Company (a division of Commerce Bank), says the unique distinction between the coronavirus pandemic and other disruptive events such as natural disasters lies in the mystery of its longevity.
“The natural disaster is easy to understand from an economics perspective,” said Colbert, “because it comes and goes and then recovery begins. The question with COVID-19 that everyone is trying to figure out is, ‘What period of time will elapse before cases in the U.S. begin to decelerate?’ What we’re experiencing is akin to a very, very slow-moving natural disaster quite unlike any other recession. I do think this is going to be the sharpest recession we’ve ever had in terms of economic impact, but it’s also going to be one of the quickest once we get our arms around it.”
Unlike the most recent recession that began with one small foreclosure and coupled into another and another, compounding upon itself relative to economic impact, Colbert says the true metric to watch to gauge the start of economic recovery will be a decrease in the number of COVID-19 cases identified across the U.S.
“Once we hit the bottom, it’s going to compound quickly but then we’ll be able to begin seeing the economy begin to pick back up,” Colbert said. “Unfortunately, many small businesses won’t be able to survive, particularly the ones that don’t have reserves and liquidity. Larger businesses will make it with the help of furloughing and other measures.”
Enterprise Bank & Trust Regional President Steve Albart concurs, refencing feedback from a recent impromptu survey of the bank construction clients. “The really key concern they cited was about the length of this outbreak and their access to cash,” Albart said. “If it’s only a few weeks, versus if it stretches out 60-90 days or more. Construction companies here will finish up their jobs and then wonder what’s on the other side of this and what 2021 will be like.”
Tim Sullivan, PhD, instructor and director of the Office of Regional Economic Analysis at SIUE, compares the emerging effects of the COVID-19 pandemic to the Great Flood of 1993, when the Mississippi River and tributaries flooded some 30,000 square miles from April to October that year.
“We’re in unchartered territory in a lot of ways,” Sullivan said. “It’s difficult to forecast this because there’s no similar past experience to reference. Even September 11th doesn’t align well with what we’re looking at with COVID-19. Just like the flood, this pandemic keeps coming and coming. We’re looking at something that is going to last for a long time. We know how it’s already affecting things, but the economic data are moving slowly. Most governmental data now being released is from February. Like individuals who’ve been exposed to COVID-19 but won’t show symptoms for some time (up to 14 days), our economy has been exposed to this, but we won’t get an accurate reading for several more weeks. And it might be a year from now before we can truly analyze the data and put a magnitude on the impact.”
Major disruption to the global supply chain will likely be the next impact of the pandemic, according to Sullivan and Ken Simonson, chief economist for the Associated General Contractors of America.
Simonson says contractors and others – especially those in major cities such as Boston, where on March 17 all regular construction activity shut down at the direction of the mayor – are feeling the uncertainty, and that’s bound to impact productivity.
“Contractors and others are beginning to report diverse impacts on building projects and products from the coronavirus outbreak,” Simonton said. “According to a report from a consultant to construction lenders based upon draw inspections (site visits during which the lender verifies that work to support the construction loan dollars has been completed), there are delayed deliveries of drywall, glass, steel, HVAC and electrical equipment from China and curtainwall from Italy.”
Simonson added that according to investment-research firm Jefferies Inc., 70 percent of the global elevator subcomponent market is sourced from factories located within a 60-mile radius around the city of Shanghai.