Will Construction Return or is this the “New Normal?”
We will return to normal, but no one knows when. Government officials walk a timing tightrope. Open too soon and the virus might return with a vengeance. Open too late and the economic system might collapse.
According to recent polls, people remain content with the lockdown for the time being. Support for the status quo will erode over time. Staying home is fine in small doses, but people are meant to work. Why else would they make daytime television so unwatchable?
Field Report
Construction work is hit or miss at the national level. Some cities have ordered construction work to stop. Other cities deem construction an essential activity. Moratoria aside, many projects are on hold for purely financial reasons. The NCDOT is postponing projects over funding concerns. Private projects in “essential activity” jurisdictions are also being postponed or cancelled, with owners waiting to see what’s over the economic horizon.
Closer to home, work continues on large mixed-use projects, high rises, and underground utilities. Gyms are closed, so I’ve maintained my finely-calibrated jaguar-like physique by parking on the south side of I-277 (the inner loop) and walking to Shelton Law Carolinas’ world headquarters at Trade and Tryon. Its the same every day: tower cranes, jackhammers, beeps, rattles, shouting foremen, blasts of wind-blown sand and water. Construction is alive and well in Uptown Charlotte, but take away construction and Uptown is a ghost town.
Restaurants have set up tables along the sidewalk for carry out. What fate awaits these restaurants and the other storefront businesses that haven’t opened their doors in weeks? Lock boxes are emptying and commercial landlords must decide whether to declare “Default!” or keep tenants afloat with lease amendments. Upstream, the lenders must decide whether to foreclose or forbear on those very landlords. The CRE circle of life . . . .
These case-by-case decisions must be made at a time of incredible uncertainty. What will the country look like in September? Will the economy burst out of the gate like a pent-up bull? Or will it sputter into the ditch?
Decision-makers have no choice but to place bets. Knowing what to do is hard because this is not the usual downturn. It is a recession most foul, strange, and unnatural. Bats, lab coats, shuttered storefronts, quarantines, masks, spycraft, lock downs, Charmin shortages, and trade wars. As if that’s not crazy enough, we’re in an election year.
Incumbents are on the horns of a dilemma. If shelter-in-place is lifted and the virus returns, challengers will accuse incumbents of mass murder. If the shelter-in-place is not lifted, and the narrative shifts to evictions, lost jobs, and depression, challengers will accuse incumbents of mass murder. I’m not being glib; just stating facts.
Don’t feel sorry for the incumbents. They wanted the job, and with great power comes great responsibility. But do pay attention to the news narratives to get a feel for when people will be allowed back to work and where this is heading. Real Clear Politics aggregates articles from the Locke crowd, the Hobbes crowd, and the Dr. Smith crowd. Also, remember that decisions will vary from state to state, city to city, so don’t ignore local news.
We Outsourced Manufacturing and Technology to China and All We Got Was this Lousy T-Shirt
Oil prices are historically low, the feds are spending like its 2999, and the world is closed for business. It looks bleak. Strangely, China may be the construction industry’s best hope.
Beijing is doing a spectacular job unifying Americans and turning public opinion against outsourcing. The tide was turning even before Wuhan. Regular beat downs of Google, Apple, Disney, and most recently the NBA, tell the tale of cunning communist billionaires ordering cloying crypto-colonizing billionaires to dance. And dance they have, into the dragon’s maw with one hand waving free.
We wince.
“The poll of 1,000 Americans found unfavorable opinions of China are shared across party lines, with about 70 percent of Republicans and Republican-leaning independents and 60 percent of Democrats and Democratic-leaning independents holding them. In addition, the poll shows that about 90 percent of those surveyed see growing Chinese power and influence as a threat.”
https://www.timesunion.com/news/article/Poll-shows-Americans-sour-on-China-15217242.php
China’s Think Locally, Spread Globally coronavirus strategy did not help matters. In a lawsuit filed against China, the State of Missouri framed the case against China’s thusly: “During the critical weeks of the initial outbreak, Chinese authorities deceived the public, suppressed crucial information, arrested whistleblowers, denied human-to-human transmission in the face of mounting evidence, destroyed critical medical research, permitted millions of people to be exposed to the virus, and even hoarded personal protective equipment- thus causing a global pandemic that was unnecessary and preventable.” State of Missouri v. The People’s Republic of China et al, Case No. 1:20-cv-00099 (E.D. Mo. Apr. 21, 2020).
Support for China will remain strong in certain Democrat and Republican pockets, K Street, and our academic institutions. The Communist Party of China is less popular lower down Maslow’s hierarchy, where jobs have been lost and people are worried about their livelihoods.
The bloom is probably off the transpacific rose, but China cannot be immediately cast aside. Not yet anyway. The construction industry relies heavily on China for materials and manufactured goods. Moving production back to the United States will take time, and once moved, construction materials will probably cost more. (I say probably because tariffs and trade disputes could change the cost equation.) Construction is supply-chained to China for the time being.
I should add that outsourcing to an authoritarian regime bent on replacing the United States as the sole superpower is a apparently a nuanced, complex issue with pros and cons. Having nowhere to go and nothing to do, what better time to retrieve our game consoles, gas grills, and sun-faded plastic patio furniture from self-storage and contemplate our higher standard of living?
Homeward Bound?
The days of China controlling our supply of pharmaceuticals, PPE, and vital equipment are over. Beijing all but guaranteed this result when it declared that China could plunge the United States “into the mighty sea of coronavirus.” Boastful, foolish, and accurate.
Pharmaceuticals and other industries should expect carrot-or-stick incentives to return production and supply chains to the United States. Senator Chris Coons, a Democrat, said “we should look hard at providing incentives to American manufacturers and small businesses to bring back to our country some of this critical manufacturing capacity.” Representative Chip Roy, a Republican, introduced the “Beat China Act” earlier this month. The goal of the bill is to bring pharmaceutical manufacturing back to the United States.
Expect the introduction of similar legislation in the coming months. The return of manufacturing should mean good things for the construction industry. There will be factories to build. And infrastructure. The world’s largest owner, the federal government, is contemplating a $2 trillion infrastructure bill as phase four of the coronavirus response. The wisdom of adding trillions more to our debt is a matter for economists to debate. It wouldn’t hurt to thank your grandkids.
No Guru, No Method, No Teacher
Don’t bother looking for an economic guru to tell you what the future will bring. There are too many variables right now, and many gurus have ulterior motives.
ME: Alexa, what happens to an economy after it is shut down to flatten the infection-rate curve of a potentially deadly bat-based coronavirus during an election year when the federal government has spent trillions and oil prices are at an all time low and, oh yeah, the virus may come back this fall?
ALEXA: Shall I add “bat oil” to your cart?
ME: No. But you can tell Bezos these dishes aren’t going to wash themselves.
ALEXA: (Blue light spins, goes dark, spins) Correction drones have been dispatched to your location.
You’re going to have to be your own guru. Use this quiet time to track legislation that impacts your business. Stay in touch with your network. Trust your gut. Filter out the nonsense of mountebanks. Think during walks. Get your house in order. Tell your elected officials what’s on your mind.
You should also keep your ear to the ground. To minimize garbage in, garbage out, set up a personalized coronavirus dashboard to track the specific trends and events impacting your business. The dashboard can be as simple as bookmarks, favorites, desktop links, or reading lists in your web browser. My dashboard includes Dodge’s Construction Industry Coronavirus News, which links to federal and state construction news. Look for industry-specific aggregators on trade association websites. Building your own dashboard is half the battle. Don’t rely on someone else to do this important work for you.
Coda
Construction will return, but it will take time. How much time is anybody’s guess. The economy was shut off at the street. Air has gotten into the pipes; and when the faucet is turned back on, you should expect the pipes to knock, hiss, and sputter for a while. Eventually money will flow steadily from the tap. Make a plan to be around when it does.
Gregory L. Shelton is licensed to practice in North Carolina, South Carolina, and Florida. He is a South Carolina circuit court mediator and North Carolina superior court mediator. Greg is the Managing Editor of the North Carolina Construction Law Deskbook, the definitive treatise on construction law in the state. He is also Florida board certified as a construction law specialist and has been selected in Business North Carolina’s Legal Elite and in Best Lawyers. He practices at Shelton Law Carolinas and publishes the ConstructionLawCarolinas.com blog.
