FMI is forecasting total engineering and construction spending to be down 1 percent for the year, compared to zero percent growth reported in 2019.
Acknowledging the uncertain effects of the Covid-19 crisis, FMI suggests this as the most likely scenario among those it analyzed.
In a video, Jay Bowman, a principal at FMI, identified a scenario in which the country experiences a temporary but deep decline that will return to normal by year end.
FMI said that in putting together its report, “U.S. Engineering and Construction Outlook: First Quarter 2020 Report,” it considered recent economic disruptions such as the domestic and foreign impact of Covid-19, high volatility across financial and equity markets, emergency policies set in place by the Federal Reserve, significantly lower oil prices, potential impact of federal stimulus, and mounting political uncertainty headed into the 2020 presidential election.
“Based on the speed and breadth of these various disruptions, FMI is anticipating, at minimum, a recession spanning the second and third quarter of 2020,” it said in its report. “Depth and reach of these disruptions will remain under watch through the coming months.” The report includes some specific forecasts.
What does 2020 hold for the economy?
- Spending growth in 2020 is expected to be led by public institutional and infrastructure investments across both nonresidential buildings and nonresidential structures. Current anticipated top-performing segments forecast in 2020 include public safety (+6 percent), transportation (+4 percent), water supply (+4 percent) and conservation and development (+4 percent). Forecast bottom-performing segments in 2020 include religious (-8 percent), commercial (-7 percent), amusement and recreation (-7 percent) and lodging (-3 percent).
- Many segments were downgraded, comparing growth in 2019 and forecast growth 2020 as a result of shifting cycles within the engineering and construction industry on top of significant recent economic disruptions. Office, transportation, power, highway and street, sewage and waste disposal, water supply, and conservation and development were all revised from “up” to “stable.” Additionally, amusement and recreation as well as manufacturing were downgraded from “stable” to “down.” Lodging was downgraded appreciably from “up” (+7%) in 2019 to “down” (-3%) in 2020.
- FMI’s second quarter 2020 Nonresidential Construction Index (NRCI) at 53.2 remains optimistic and is reflective of the strong and stable industry sentiment seen through most of the first quarter. This reading is also likely an early indication of changing sentiment due to the various economic disruptions initially realized towards the end of the first quarter.
“Over the coming weeks and months, FMI anticipates much more information forthcoming to help drive our expectations around current economic developments,” the report said. “Only time will provide clarity and understanding in how converging current events unfold related to Covid-19, oil price collapse, political uncertainty and the significant volatility seen across domestic and international financial markets.
“The estimates and assumptions presented within this first quarter Outlook include two quarters of negative GDP growth in the second and third quarters of 2020, defining a minimum period for an economic recession. However, we understand that the duration and reach of the factors noted in our introduction could send severe shock waves far beyond what is apparent today.”
The full report is available on the FMI website.