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Imagining a Reimagined Future

The Post COVID-19 Recover Outlook

May 19, 2020

2FMI Corporation | Copyright 2020

“He knows changes aren’t permanent, but change is.” – Neil Peart

COVID-19 Industry Implications and Outlook | May 19, 2020 update


Just because the future is uncertain, it doesn’t mean it is unknowable.


National Bureau

of Economic Research:

• Wholesale/retail sales

• Industrial production

• Real income

• Employment

Dynamic models

are required in the

current context


An unprecedented velocity of change

Pre-pandemic Post-pandemic

+273,000 jobs (2/2020) → -33M jobs (3/15- 4/18/2020)

3.5% unemployment rate (2/2020) → 25% unemployment rate

7-yr peak labor force participation rate (2/2020)

+2.9% wage and salary growth (Q4 2019)

+4% retail trade and food sales (2/2020 vs. 2/2019) → -30% retail trade and food sales (3/2020 and 4/2020)

Q1 Q2 Q3 Q4

Dod

ge

NA

HB

Go

ldm

an S

ach

s

JP

Mo

rga

n

-18%/ -34%

-2%/ -9%

+8%/ +19%

+3%/ +10%

US GDP projections

March 31, 2020- May 15, 2020



Preparing for a V, U, or L shaped recovery

$1,307

$788

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Total construction spending put in place (US)

Billions of current dollars

Source: FMI

$1,404

(2-year decline/ 2% CAGR 20- 24)

$1,286

(3-year decline/ 0% CAGR 20- 24)

$834

(4-year decline/ -9% CAGR 20- 24)

Near return to Great Recession trough



$200

$250

$300

$350

$400

$450

$500

$550

$600

2019 2020 2021 2022 2023 2024

2019 ($521B)

Mid case

Best case

Worst case

Residential suffers from credit constraints and loss of wealth

Current “interim” Q2 2020 Outlook trajectory


Residential buildings spending put in place (US)


Source: FMI


$250

$300

$350

$400

$450

$500

$550

$600

2019 2020 2021 2022 2023 2024

2019 ($534B)

Mid case

Best case

Worst case

Nonresidential buildings construction will be very uneven

Current “interim” Q2 2020 Outlook trajectory


Nonresidential buildings construction spending put in place (US)


Source: FMI


0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Category 1 Category 2

Po

ten

tia

l d

ep

th o

f d

eclin

e

Potential length of decline

Sh

allo

wD

eep

Brief Prolonged

Office

Lodging

Commercial

Nonresidential buildings construction segment recession risk

Potential depth and length of decline

Source: FMI

Nonresidential Sector

(Overall)


Segment impact

Health care

Religious

Educational

Public Safety

Communication

Transportation

Manufacturing

Amusement & Recreation

Lodging

• Travel (both business and leisure), RevPar and

occupancy rates all plummet through 2020 as a

result of COVID-19

Office

• Downtown markets experience rent stabilization

while vacancy rates trend higher

• Slowed employment growth expected to weigh

on future spending

• Demand for data center investment continues to

expand rapidly alongside 5G deployment

Health care

• Demand and adoption for health care services

and technologies (e.g., telehealth and wearables)

are expected to jump substantially in the wake of

COVID-19 and 5G deployment

• Affordable Care Act is anticipated to become an

important political platform through the 2020

presidential election

• Project pipeline suggests some resurgence in

larger health care campuses

Manufacturing

• COVID-19 related (international and domestic)

supply chain disruptions, political uncertainty,

ongoing trade tensions and oil price collapse

support continued decline in industrial production

into 2021

• Large scale planned petrochemical investments

along the Gulf Coast postponed or shelved until

oil prices rebound and volatility in the energy

sector stabilizes



Pacific

Division

-1%

Mountain Division

-1%

West North

Central Division

-2%

East North

Central Division

-2%

West South

Central Division

1%

East South

Central Division

-1%South Atlantic Division

0%

Middle Atlantic

Division

-1%

New

England

Division

-1%

Forecast growth in nonresidential buildings construction spending put in place

2020; by Census Division

Source: FMI March 20, 2020


$230

$240

$250

$260

$270

$280

$290

2019 2020 2021 2022 2023 2024

2019 ($251B)

Mid case

Best case

Worst case

Public infrastructure may not provide traditional relief

Current “interim” Q2 2020 trajectory


Nonbuilding structures construction spending put in place (US)


Source: FMI


2006- 2011 Percent Change in Construction Spending Put in Place

US total

Source: FMI

Total construction

Multifamily

Lodging

Office

Commercial

Health Care

Educational

Religious

Public Safety

Amusement and Recreation

Transportation

Communication

Manufacturing Power

Highway and Street

Sewage and Waste Disposal

Water Supply

Conservation and Development

Single family

Improvements

-80% -60% -40% -20% 0% 20% 40% 60% 80%


Bulls and bears coexist in all economies


Potential winners and losers


Manufacturing

Distribution

Communications/

Data Centers

Intelligent Transportation Systems

Lodging

Commercial

Amusement & Recreation

Office


Avoiding poor—if not dangerous—decision making

Decision Paralysis Gut Instinct

• Most common among loss-

averse organizations

• Abandonment of analytical

rigor

• Premature action/

“Ready. Fire. Aim.”

• Potential for anchoring and

confirmation bias

• Most common among risk-

averse organizations

• Data/ Information obsession

• Delayed action/

“Wait and see”

• Potential for normalcy bias



Regardless of the shape, the recovery will be reinvented

The biggest mistake

made during the Great

Recession…

Not moving fast enough


Avoid decision paralysis

Perform frequent situation analysis

Consider market composition

Align with customers

Know what to say no to

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