Concerns remain about employee wages, benefits and regulatory landscape
Construction industry executives are more optimistic about
nonresidential construction activity than they have been since the 21st
Century, according to a nationwide survey of industry contractors and
equipment distributors released today from Wells
Fargo Equipment Finance, a subsidiary of Wells
Fargo & Company (NYSE:WFC).
In its 42nd year, the 2018 Construction
Industry Forecast reveals increased confidence for the construction
industry and expectations about net profits and equipment sales and
rentals. New this year, the survey also included an analysis to compare
respondents’ optimism levels to other economic indices.
The survey’s primary benchmark for measuring industry confidence is the
Optimism Quotient (OQ). The OQ for 2018 is very positive at 133, a
ten-point increase over 2017. This is the highest OQ in 20 years. An OQ
score greater than 100 indicates strong optimism for increased local,
non-residential construction activity versus the prior calendar year.
“It’s exciting to see this level of optimism. It reflects what we have
heard from our customers about the strength of the market,” said John
Crum, senior vice president and national sales manager of the
Construction Group at Wells Fargo Equipment Finance. “Many industry
participants feel that this could be one of their best years ever.”
While most distributors and contractors maintain a positive outlook on
construction activity and industry expansion, looking out two years,
fewer predict the pace of growth will continue at this level. That
doesn’t mean the majority feel the industry won’t expand. Seventy-three
percent of contractors said that the most likely scenario in the next
two years is expansion, while those who said that the current level of
activity will remain static increased to 19 percent. Few in the industry
predict that a contraction is likely in the same time span, with only 9
percent of contractors and 9 percent of distributors saying that
activity level will be less.
Equipment sales and purchases
2017 was a good year for equipment sales, and according to the industry,
2018 could see further improvements. Seventy-six percent of distributors
said that their sales of new equipment will increase, while 78 percent
say their sales of used equipment will increase. On the contractor side,
37 percent indicate that they will purchase more new, while 27 percent
indicate they will purchase more used.
“One key factor to look at in the results is that the percentage of
contractors who said they would buy less new and used equipment in 2018
shrunk to the lowest levels in five years,” Crum added.
Distributors and rental companies indicated that their rental fleets
will increase in 2018 over 2017, with 55 percent indicating their
intention to expand. Notably, only 7 percent say they will decrease the
size of their fleets.
The survey asked companies who rent construction equipment about what
would happen in the event that the cost of renting should increase.
Respondents indicated that an increase in rental costs of 5 to 15
percent would make 63 percent of those surveyed consider purchasing
equipment rather than renting.
“That such a small increase in rental costs would make companies who
rent equipment consider buying instead of renting indicates that the
industry is at equilibrium between availability and pricing of rental
equipment,” said Crum.
Top concerns and industry awareness
While net profit expectations remain positive, finding and paying for
skilled labor and healthcare costs remain top concerns that will have a
potential impact on net profits. Employee wages and other benefits (31
percent), and healthcare costs (18 percent), ranked as contractors’ top
cost concerns.
Meanwhile, concerns over equipment costs (20 percent) and equipment
rental costs (20 percent) remained top of mind for distributors.
One in two respondents said that they are aware of pending changes to
the accounting rules for leasing, with about 50 percent anticipating
somewhat of an impact or even a great deal of impact on their business;
about 20 percent expect no impact at all. Fewer respondents, just over a
third, are somewhat or very concerned about the effect new regulations
will have on their business while 28 percent express no concern at all.
How does Optimism Quotient compare to other key economic indices?
This year, the Construction Industry Forecast analyzed and compared the
data to four other economic indices for the construction industry
outlook, including the Architectural
Billings Index, the Private
Construction Index, the Industrial
Production Index and the Nonresidential
Construction Index. Although there are differences in any given
year, the overall data shows that the Optimism Quotient tracks closely
with these economic indices. See detailed charts on page 5 of the report.
Net profits on the rise
The industry feels increasingly positive about profits. Ninety-two
percent of respondents said net profits will either remain the same or
increase from 2017, with 61 percent expecting an increase in
profitability.
More about the Construction Industry Forecast
The survey results presented in this 2018 Construction Industry Forecast
represent the 42nd year in which Wells Fargo Equipment
Finance and its predecessors have surveyed construction industry
executives to gather insight into current business conditions and
trends, and to measure their sentiment toward construction activity in
the coming year. To learn more, download the complete report.
Year-over-year OQ comparison
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Survey Year
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Optimism Quotient (OQ)
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2018
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133
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2017
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123
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2016
|
|
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108
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2015
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|
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130
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2014
|
|
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124
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2013
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106
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2012
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114
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2011
|
|
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96
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2010
|
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66
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About
Wells
Fargo Equipment Finance
Wells Fargo Equipment Finance (WFEF) provides businesses nationwide with
competitive fixed- and floating-rate loans and leases covering a full
range of commercial equipment, floor planning, and inventory financing.
WFEF has industry financing specialists dedicated to construction,
energy, commercial and specialty vehicles, marine, rail, aircraft, and
vendor financing programs. We offer a broad range of direct and vendor
finance programs for equipment end-users, distributors, and
manufacturers in the United States and Canada. Wells Fargo Equipment
Finance is the leading bank-affiliated equipment leasing and finance
provider in the U.S. and Canada, with more than $49.7 billion in assets
under management, more than 325,000 customers, and 2,600 team members.
1. 2017 Monitor 100.
2. Equipment financing transactions are
provided in Canada by Wells Fargo Equipment Finance Company. Wells Fargo
Equipment Finance Company is an affiliate of Wells Fargo & Company, a
company that is not regulated as a financial institution, a bank or
holding company or an insurance holding company in Canada.
3.
Company data as of March 31, 2017.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based
financial services company with $2.0 trillion in assets. Wells Fargo’s
vision is to satisfy our customers’ financial needs and help them
succeed financially. Founded in 1852 and headquartered in San Francisco,
Wells Fargo provides banking, investments, mortgage, and consumer and
commercial finance through more than 8,300 locations, 13,000 ATMs, the
internet (wellsfargo.com) and mobile banking, and has offices in 42
countries and territories to support customers who conduct business in
the global economy. With approximately 263,000 team members, Wells Fargo
serves one in three households in the United States. Wells Fargo &
Company was ranked No. 25 on Fortune’s 2017 rankings of America’s
largest corporations. News, insights and perspectives from Wells Fargo
are also available at Wells
Fargo Stories.