NGA Glass Conference Day 3 Closes with Sobering Economics Report
July 30, 2020
The third and final day of the NGA Glass Conference got technical, with sessions focused on architectural glass and frequently asked questions from the design community, safety glazing, and glass and glazing technical codes updates.
Related content: Energy Code Evolutions 2020 by Tom Culp
Stay tuned for the September/October issue of Glass Magazine for complete coverage of the conference's technical sessions.
The day closed with "Leveraging Leading Indicators in a Post COVID-19 World," an ecomomic update from ITR Economics' Connor Lokar.
"If I could describe the environment in one word, it would be uncertain," he opened with. Lokar focused on some leading indicators to paint a picture of the current economy and what construction can expect in the next couple years to answer two big questions companies have: What's coming next and how can we find confidence in the future?
He described the "macroeconomic carnage" happening right now, referencing the record Q2 GDP drop of 32.9 percent. Lokar doesn't anticipate the macroeconomic recession will go away quickly, nor does he anticipate a V-shape recovery. "This will ripple through the economy through next year sometime," he said.
Construction is a lagging sector, in that it lags behind the overall U.S. economy. As such, the U.S. economy is a leading indicator for where construction is going. Depending where a company sits in the construction market, it will have varying lead times for when things decline and then start to recover.
The business cycle
Lokar said companies must know where they sit in their businesses as they relate to the U.S. economy and presented the business cycle arc:
- Phase A: Recovery. Annual sales are below year-ago levels but the rate of decline is slowing.
- Phase B: Accelerating growth. Annual sales are above year-ago levels and are growing at a rapid pace. Lokar said this phase might not occur until late 2021 for parts of the nonresidential construction market.
- Phase C: Slowing growth. Annual sales are above year-ago levels but the rate of growth is slowing. Lokar anticipates this will happen in 2022.
- Phase D: Recession.
Nonresidential construction currently sits in Phase C. "The market is quickly losing momentum right now," said Lokar. He warned to prepare for pain into the second quarter of next year before reasonably expecting things to pick back up. "Some of your worst problems are unlikely to show up until next year," he said.
By market segment, Lokar predicts anything tied to warehousing and wholesale distribution will quickly move back to growth posture. Manufacturing facility construction will "take an absolute beating this year," he says, but is bullish on it for 2021-22 as manufacturers look to bring operations back home that had been overseas. On the flip side, the hospitality market is "very concerning" and could take a long time to come back. Education construction may also struggle in 2021, he said.
Lokar also spoke to the government stimulus packages around COVID-19. From a current near-term perspective, Lokar agrees the stimulus packages are supportive to the current business cycle and mitigating the economic decline. There was a certain necessity, he said, for the government to alleviate some of the pain and bridge the liquidity gap created by the government-mandated shutdowns.
Longer-term, however, "This will not be without consequence. The stimulus is dumping water on today's fire but dumping gasoline on the fire of tomorrow," he said, anticipating that tax rates will "rise rather painfully" to pay for the relief packages.
He also believes the U.S. will face "a serious economic reckoning" in the 2030s and that COVID-19 has made that expectation even more probable.