Much has been written and much more will be written about the sub-prime lending meltdown. Certainly for a fiscally conservative person, I find some of the commentary confusing and co-dependent.
As I look out some months ahead and try to project what this means to my clients, I can confidently state a few predictions. These comments are from someone who has managed in recessions – two to be exact.
1) This slow down will be different than the previous ones. More specifically, we have different causes and resulting effects (oil prices, home building / buying activity, Federal Reserve reaction, poorly managed mortgage firms, Congressional action, Presidential Election etc.) than 73-74′ and 80-82′.
2) Contractor’s response will have to be the same as is in the past i.e. financial conservatism, planning at all levels, marginal employee reductions, careful marketing, detailed estimating and the like.
3) Due to the above two, Contractors cannot be speculative in their business aka “only believe it when the contract is signed and the project is funded”. We cannot bet on the come. There is too much uncertainty. The market can move in 360 degrees of direction and you can only move in one.
4) As of this date, the press and others have overreacted. We have been short in the number of craftspeople, project managers, superintendents and like people since 1993. This current slowing of economic activity will only “right size” the demand of construction services with our capacity to fill it.
5) Don’t forget, we are still the safest place in the world to invest money. There is little doubt that the investment activity from foreign regions will continue. Our previous levels of economic activity will be dampened somewhat but not be injured, maimed and certainly, not killed.
6) Many housing focused contractors have moved from that sector to other ones. That is a rational business move. They don’t see the housing marketing coming back swiftly. There have been many other such strategic redirections by construction firms.
We believe that the current environment will be healthy for the construction industry. Some of the companies who are late arrivals and don’t love this business will go away. That is great news for those of us who enjoy the challenges and the unique nature of our industry.
For more information on this critical subject, purchase a copy of my McGraw-Hill book, Managing a Construction Firm on Just 24 Hours a Day. We offer a bundle with Excel templates that are featured in the book and 5 on-line courses to help teach construction business concepts. Go to www.stevensci.com and click on the book link
Our workbook companion with 10 case studies is titled, The Business Managment Workbook for Construction with Case Studies is now available.This text is focused as an assist for Colleges, Associations and Contractor Training Programs that teach the business of construction.
My next book, The New Business Model of Construction Contracting is planned for December 2007. Its focus concerns the changing construction environment and what processes address those changes.