Business of Engineering
What engineering firms can expect in 2020
Here are eight business trends to watch this year
Hindsight may be 20/20, but a little foresight is required to look ahead to 2020. Here are the top eight business trends engineering firms should watch going into the new year.
- The economy remains hot — for now. Despite prognostications of its demise, the economy is still chugging along with the United States in the midst of its longest expansion on record. Personal spending has been the engine of economic growth, but if it retreats, it could signal trouble as the Federal Reserve has little room to cut interest rates to forestall or mitigate a recession because they are already so low. More than four out of five business economists (81%) surveyed by the National Association for Business Economics in October believed that risks to the economic outlook are weighted to the downside rather than the upside. With the uncertain outlook, firms will be smart to keep one foot on the gas while hovering the other over the brake.
- Firms may continue to feel collateral damage from the trade war. In spite of concessions on both sides in the trade war between the United States and China, engineering firms face risk from a possible escalation. The tariff battle has weakened business investment and the manufacturing sector at the same time that it has raised the cost of construction inputs, squeezing the budgets of project owners.
- Recruiting and retaining top talent will remain a major challenge. With unemployment at a 50-year low of 3.5%, the labor market is as tight as ever. No matter which engineering firm leader we talk to and where they are in the country, just finding enough bodies to get the work done is still a primary concern. The biggest challenge for many firms in 2020 will be finding the right talent to allow them to take advantage of market demands.
- Economic uncertainty could push more firms to sell. The pace of deal-making among architecture/engineering firms continued at a torrid pace in 2019 after a record year for mergers and acquisitions in 2018. It’s a seller’s market, but for how much longer? With M&A activity and multiples as high as we’ve seen them, firm leaders contemplating a sale will not want to risk missing their opportunities if they see signs of a business slowdown.
- Firms will head south for growth opportunities. Watch for more and more firms to migrate to the Southeast to chase project opportunities driven by Sun Belt population influxes. In addition to establishing new offices, firms are buying into the region. M&A activity in the Southeast was on pace to rise more than 30%in 2019 and should continue its strong growth in 2020.
- More firms will embrace lean processes. Following the lead of millions of Americans looking to shed a few pounds, more engineering firms will start off the new year by adopting lean planning and design due to robust work levels and the difficulty in hiring project managers.
- Public works will be a bright spot. The three strongest markets in terms of construction spending in 2019 were the heavy engineering markets of flood control, highways and streets and sewage and waste disposal. Forecasters expect the trend to continue in 2020 with public works construction outpacing most other sectors. While uncertainty about the economy is leading many private developers to proceed more cautiously on new projects, state and local government budgets are still generally healthy. The rise of smart city projects also will boost infrastructure spending.
- Firms will keep a sharper eye on profitability. While there is wariness about how the future of the economy will impact project revenue, the costs of running an engineering firm — such as labor, rents, health care premiums and liability insurance — continue to spike. With bottom lines coming under increasing pressure, firms will need to be more vigilant about firm profitability in 2020.