Fresh off an all-time high in 2015, a survey indicates that optimism about local, nonresidential construction activity is weaker in 2016 but still bullish.
Fresh off an all-time high in 2015, a survey indicates that optimism about local, nonresidential construction activity is weaker in 2016 but still bullish.
The survey of industry contractors and equipment distributors — released by Wells Fargo Equipment Finance, a subsidiary of Wells Fargo & Co. — reveals that the Wells Fargo Construction Industry Forecast’s Optimism Quotient (OQ) for 2016 fell to 108 after reaching an all-time high of 130 in 2015. However, a reading over 100 suggests strong optimism for increased local construction activity versus the prior calendar year.
The survey also shows that 62 percent of executives believe the construction industry will expand over the next two years, and 52 percent expect profits to improve this year.
“The construction industry is telling us that overall sentiment remains positive, though not as overwhelmingly positive as the previous year,” said John Crum, senior vice president and national sales manager of the Construction Group at Wells Fargo Equipment Finance. “Expectations for industry growth have flattened out due to market conditions and, in contrast to previous years, there is a very small gap between the confidence levels of equipment distributors and contractors.”
The 2016 Construction Industry Forecast presents the results of Wells Fargo Equipment Finance’s 40th year surveying construction industry executives. This year’s survey was conducted Oct. 19-Nov. 6. Drawing on the responses of construction contractors and equipment distributors from across the U.S., the forecast reveals trends in the industry and gauges the sentiment of industry leaders on a variety of business topics.
The latest survey indicates that, in contrast to previous years, distributor and contractor acquisition intentions are heading in different directions. For 2016, contractors are indicating that their intentions to purchase new construction equipment are on the rise, while on the equipment distributor side, the expectations of new equipment sales are less positive.
Exactly half of distributor survey respondents expect new sales to increase in 2016, compared to 70 percent in 2015. Meanwhile, 57 percent expect an increase in the sale of used equipment in 2016, compared to 73 percent in 2015.
While fewer distributors are expecting new sales to increase, the number of contractors who expect to purchase new equipment has nearly doubled over the last three years to 42 percent. However, fewer contractors (26 percent) expect to purchase used equipment in 2016, down from 30 percent in 2015.
Regarding rental pricing, rental costs would need to increase by 15 percent or more for most executives (52 percent) to consider buying equipment instead of renting. Twenty-five percent said rental rates would need to increase by between 5 percent and 15 percent in order to buy instead of rent. To consider buying equipment, contractors need to see consistency in the backlog of jobs and confidence in the local and national economy.
The multiyear trend in equipment rental growth is set to continue in 2016. The majority (63 percent) of responding equipment distributors and rental companies said they are renting more equipment to contractors than a year ago. However, a smaller percentage (44 percent) than last year (60 percent) said they plan to increase the size of their rental fleet in 2016. Forty-five percent of distributors expect fleet size to remain the same as in 2015.
Most contractors (55 percent) believe their equipment rentals will remain at a similar level to last year. A smaller percentage (27 percent) of those who rented heavy construction equipment last year expects to increase rentals this year, down slightly from 37 percent in 2015. The top reasons cited for renting equipment were the need for project-specific equipment (40 percent), the lack of consistent work to justify equipment acquisition (29 percent) and the flexibility to return equipment at the end of term (17 percent).