Soft landing… We’ve likely all heard these words with regard to the economy and the monetary policies employed to combat inflation while avoiding a “harder” recession. Bonding strategies in uncertain markets are crucial during these times. One of those economic levers being used is interest rates. The Federal Reserve is now moving carefully as indicated by the rate hold in September, but because jobs and consumer spending data continue to be strong, further adjustments may be on the docket.

Other economic indicators may even suggest that there could be a little lag in the economy’s reaction to a Federal Funds Rate that has climbed from .25% to 5.5% from March 2022 to July 2023. You can read the full article from Forbes Advisor HERE.

Small businesses continue to struggle through labor and material shortages and now face further pressure with higher financing costs and inflation. Bonding strategies in uncertain markets become even more critical in such circumstances. Unsurprisingly, the National Federation of Small Business (NFIB) Small Business Optimism Index declined in September to some of the lowest levels since 2012.

The architecture billings index (ABI) for September 2023 took its biggest dive since December of 2020. The ABI is a leading economic indicator for nonresidential construction activity, and a large decline would indicate that fewer projects are being designed and bid on. Architecture firms also lost 1,900 positions from July to August. you can read the full article from The American Institute of Architects HERE.

Does this mean project pipelines are drying up? I would say, not drying up, but accordingly reacting to the pressures of interest rates and what that does for a project owner’s proforma and either scaling back a project to be within budget or simply delaying it. Because of this, backlogs have still been very strong for most contractors, emphasizing the importance of bonding strategies in uncertain markets.

Another risk factor to consider is that there are contractors out there that were propped up by PPP and ERC funds. As the market continues to tighten, those funds will be exhausted and present additional risk on construction contracts, underscoring the need for robust bonding strategies in uncertain markets.

How does all this relate back to bonding?

As private work slows, municipal work is expected to hold or increase. Perhaps your construction firm hasn’t worked in the public sector and hasn’t gone through the process of bonding a job. It is a good time to get ahead of that and start working with an agent that can place you with the right underwriter and help strategically as you navigate this market with its unique bonding challenges.

If you are already bonding work, follow the Federal Reserve’s lead in moving carefully. Careful in the sense of anticipating more competition on upcoming projects, firm up the company’s operations, and maintain the company’s liquidity and capacity. Effective bonding strategies in uncertain markets will be your key to success in these dynamic times.

Restrictive monetary policy is here and creating an uncertain market. The team at DSP Insurance Services is here to help you navigate the uncertainty and serve as one of your trusted advisors in crafting and implementing effective bonding strategies in these uncertain markets.