Preparing Your Organization for the Long Term
It’s time to embrace what matters and ignore what doesn’t.
It’s time to embrace what matters and ignore what doesn’t. As we move into the second quarter of 2021, there’s reason to be cautiously optimistic about what lies ahead. While many organizations spent the last 12 to 16 months reacting to circumstances and putting out daily fires, we’ve reached a point where a reset is in order. As in, it’s time to start planning for the long term, as the economy begins to recover at a faster than anticipated rate. In the U.S., the successful vaccine rollout, economic stimulus strategies, proposed infrastructure investments and legislation focused on encouraging broader economic growth are all helping to improve the economic outlook.
For 2021, FMI is forecasting in the aggregate a 1% net decline in construction put in place, but that’s coming off 5% net growth in 2020. Inside of those numbers, we see mixed outlooks. Many nonresidential sectors declined a few percentage points in 2020, for example, and are forecast to repeat that drop in 2021. This is offset by an incredibly strong residential construction market that we expect to start moderating in 2021, with nonresidential construction staying mostly flat.
Market feedback corroborates this. The Construction Industry Round Table (CIRT) Sentiment Index on future construction spending was as high in the second quarter of 2021 as it has ever been. Likewise, the FMI Nonresidential Construction Index, which was 47.1 last quarter, is now at 50 (its median). Sentiment continues to improve, and the FMI Heavy Civil Construction Index returned positive for the first time in 12 months.
Combined, these three industry sentiment indexes are all trending favorably for near-term spending. Based on these metrics, we're now beginning to think that the majority of the downturn in construction spending will be isolated to 2021. From there, we’ll continue to see a recovery in the second half of the year and into 2022.
Knowing that any downturn affecting industry sectors right now may be relatively short-lived, we see this as a good time for companies to start thinking harder about their long-term plans. With labor shortages continuing to impact most industries, compensation, benefits and total rewards have become key topics for executives who want to do a better job of rewarding and retaining qualified workforces.
Workplace flexibility is another important consideration as companies return to on-site work and/or develop more permanent, flexible remote work policies. The question is, what impact will these shifts have on corporate culture, productivity and workforce effectiveness. These are some of the near-term challenges that leaders across the industry are grappling with right now.
Companies should also be dusting off their succession plans, incentive plans and other longer-term strategies that may have been postponed due to the pandemic. With many of the shorter-term challenges either already tackled or on their way to being solved, now is a great time to begin making some of these proactive moves.
Put simply, considering all of the recent changes impacting the engineering and construction industry, it’s our job to embrace what truly matters and ignore what doesn't. We must also work hard with our teams to position our firms in the appropriate markets where we can continue to compete and win.
