Construction Firms Cope with Difficult Economy
- Apr 02, 2009
There’s little doubt that the construction industry has felt the full force of hard times, earlier in fact than most other industries. With the popping of the housing bubble beginning in 2006, the residential side of the industry started to suffer, and with the credit freeze setting in in 2007, the commercial side of the business also faced a slowdown. Now the recession has dampened demand for new buildings even more. According to the U.S. Department of Commerce, construction spending during January 2009 stood at a seasonally adjusted annual rate of $986.2 billion, down 3.3 percent from the month before, and fully 9.1 percent below the same month in 2008. Between December 2008 and January 2009, private non-residential construction dipped 4.3 percent–more than residential construction for the same period, which was down 2.9 percent, perhaps because residential development has been contracting longer than non-residential development. How are construction companies coping with the contraction? “It sounds cliché, but in strong economic climates or in a downturn, it’s always about executing the fundamentals,” Jeffrey Krusinski, business development manager at Oak Brook, Ill.-based Krusinski Construction Co., told CPN. “Of course we aren’t blind to the recession, and we closely monitor our overhead and expenses and run as lean as possible, but we also operate at a very high level with a strong team in place regardless.” Diversification helps as well. Currently, for example, Krusinski is building a new railroad control facility for CN Railway in Homewood, Ill.; the Chicagoland Laborers Training and Apprentice Center in Chicago; new buildings for B’Nai Jehoshua Beth Elohim in Deerfield, Ill.; and a basketball and volleyball facility in Bolingbrook, Ill. But diversification means more than varied project types. Geographic diversification is also an effective strategy, Manning Pletz, president of Memphis-based PanAmerican Contractors, told CPN. “One of the greatest moves I made prior to the decline of the economy was to market my business internationally, affording me the opportunity to work outside the U.S. in areas which may not be as adversely affected, though that isn’t to say that the U.S. situation doesn’t have far-reaching affects,” he said. His company, which is active in Central and South America as well as the United States, builds in all the major property types and such specialized projects as educational, healthcare, sports, correctional and biotech facilities. “It’s important to develop expertise in certain construction markets which are more sustainable during times of recession, such as the healthcare market,” Pletz added. The prospect of construction projects paid for by the recently passed federal stimulus package also offers a glimmer of good news for the industry, though it isn’t clear yet how all the funds will be parceled out. Still, the money allocated for construct projects is sizable. Roughly $29 billion will go for modernizing roads and bridges, and $18 billion will go for clean water, flood control and environmental restoration projects. Defense Department facilities, including housing for troops, will received about $5 billion worth of upgrades.