A financial view: Industries impacted by COVID-19 and the path forward
Businesses and individuals alike have been impacted by the COVID-19 pandemic in various ways, many of which we won’t realize until much later down the road. From a financial lending perspective, the impacts are just as far-reaching and varying. According to the Mid-Sized Bank Coalition of America, 56% of regional banks have more than 10% of their commercial and industrial loan book on modification or deferral.
In some industries, such as manufacturing, we have seen businesses quickly innovate and adapt to the changing needs of society by switching their production lines to meet the demands of today. For others, such as commercial real estate, there are various unknowns about what the future holds for offices, hotels and senior living, making it extremely difficult to prepare and plan.
What we do know is that our economy will continue to fluctuate over the coming months, and that every industry will have to be flexible, nimble and responsive to the new world we live in. Here’s a look at how several industries have been impacted by COVID-19 and actions they have taken to adjust and adapt.
Construction + Contractors
The U.S. construction industry typically has more than 7 million employees and creates nearly $1.3 trillion worth of structures each year, according to the Associated General Contractors (AGC) of America, the leading association for the construction industry. However, it is one of the industries that has been hit the hardest this year.
According to the ACG’s latest report‡, employment in the industry decreased in 225 metro areas, or 62%, out of 358 between June 2019 and June 2020, despite showing increases in May and June. Why has this industry been affected so greatly? Construction firms experienced a tremendous amount of project cancelations and delays earlier this year following the COVID-19 pandemic, causing many of them to furlough or terminate employees.
But it’s not all negative for the construction industry. In a recent survey‡ by ProCore (a construction project management company), 81% of executives in the industry are optimistic about a rebound before the end of the year. In addition, many firms are tackling the pandemic by readjusting project cost projections, staggering jobsite schedules for social distancing and creating new safety procedures. Industry experts are also urging government officials to help the sector recover by enacting liability reform, boosting infrastructure investments for public projects and tax credits as well as extending the Paycheck Protection Program.
From medicine and electronics to food and beverages, the U.S. manufacturing industry is a behemoth. According to the National Association of Manufacturers (NAM), the industry accounts for more than 11% of the total economic output in the U.S. and employs approximately 8.5% of the workforce. It is yet another industry that has been dramatically impacted by COVID-19.
Today, many manufacturers continue to face supply chain disruptions, operational changes and negative financial impacts to their business due to the pandemic. Some of their biggest challenges include reduced customer demand, implementing increased safety protocols, temporary shutdowns due to outbreaks in their facilities, ongoing workplace sanitation and staggered shifts, to name a few.
Not counting for states that deemed manufacturing non-essential, success stories in the industry come from manufacturers that were able to adapt quickly to the changing needs of customers and suppliers. This includes those that were able to produce personal protection equipment (PPE), hand sanitizer and cleaning suppliers, plexiglass, and other supplies related to COVID-19.
Similar to the construction industry, manufacturers are looking to Congress and the government to take action and help support and sustain the industry. Spearheaded by NAM, the industry is requesting federal funding and interest-free loans, the delay of tax payments, changes to employee benefits, reduced regulatory burdens, tax credits and more.
The wholesale distribution industry accounts for nearly 6 million employees in the U.S. with annual revenues of more than $5.9 trillion, according to the National Association of Wholesaler-Distributors (NAW). Wholesale distributors purchase products directly from the manufacturer, store them in a warehouse and then sell and ship those products directly to retailers or customers.
During the past five months, wholesalers have had to examine their supply chains, workforce needs and customer behavior to find their place and relevance during the pandemic. According to SAP (a software market leader), nearly 75 percent of companies report supply chain disruptions due to COVID-19 related travel disruptions, and nearly half of wholesale distributors are reducing future inventory. More than 33% have laid off employees.
To help combat these challenges, industry experts are advising a swift move toward more e-commerce as consumer buying habits shift, adding additional suppliers to their networks to ensure a steady inventory of products, and implementing upgrades to data IT to help track and control their ever-changing inventory.
Commercial real estate
Comprising the office, industrial, multifamily and retail sectors, the commercial real estate industry in the U.S. is a significant part of the overall economy. According to the NAIOP, the Commercial Real Estate Development Association, the industry supported 9.2 million American jobs in 2018 and contributed $1.4 trillion to the U.S. GDP. And like many other industries, it has been hit hard by the pandemic.
Of the four sectors in the industry, hotel and retail were two of the most impacted during 2020 as the pandemic halted construction, travel and shopping. The multifamily sector has been holding steady over the past few months, but there may be future impacts as the economy tries to rebound. There is concern that vacancy rates may be on the rise in the coming months as residents’ employment and financial status may be negatively impacted by the pandemic. The silver lining in the commercial real estate sector continues to be the industrial sector. As e-commerce remains strong, the industrial real estate market continues to grow based on increased demand for warehouse space from wholesalers and distributors.
No matter the industry, have a financial plan
Regardless of what industry you’re in, there are certain considerations and conversations you should be having with your financial team right now. Those conversations should include a review of your business plan, examining cash flow projections, debt refinancing options, budgets, staff and benefits as well as discussing revenue projections. From a lending perspective, we know businesses need additional liquidity now more than ever and most financial institutions are working with existing and new customers to provide more working capital.
What we find most interesting is that the companies finding success right now are those that are being flexible and responsive. They are adapting and changing quickly to our new world and solving for current market demands. Understanding what the need is today, and shifting to meet those demands, will pay off for many companies now and into the future.
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