Construction Informer

Construction contractors and equipment distributors are optimistic local non-residential activity will improve in 2012, according to a recent survey by Wells Fargo Equipment Finance Inc., part of Wells Fargo & Company. In the company’s 2012 Construction Industry Forecast, Wells Fargo’s Construction Optimism Quotient (OQ) – the survey’s primary benchmark for measuring contractor and equipment distributor sentiment – is at 114 for 2012, marking a material increase from 96 in 2011. An OQ over 100 is considered optimistic of year-over-year improvement in local non-residential construction activity.

Also reporting upbeat news was GE Capital, Dealer Finance, following its survey of construction equipment dealers. Forty percent of respondents said they expect sales to increase 3-5 percent this year, while 25 percent said they expect sales to increase 6-8 percent. A full 77 percent said the best time to increase inventory is within the first half of 2012. At the same time, 57 percent cited slack demand for new construction – both residential and commercial – as the biggest hurdle that construction equipment distributors have to overcome this year.

Slightly more than half of respondents said improvement in the U.S. economy will have the greatest impact on the construction industry. The other important factors affecting the industry are access to credit for end users (23%) and reauthorization of the federal highway spending bill (20%). When asked what single category of construction equipment they believe will be in greatest demand this year, 37 percent cited earthmoving equipment and 23 percent cited specialty equipment such as pavers, compactors, drills, crushers and grinders.

GE’s full survey results are available here.

According to John Crum, senior vice president and national sales manager of the Construction Group at Wells Fargo Equipment Finance, Inc.:

This high rating is an encouraging sign that, for the majority of contractors and equipment distributors, business has stabilized and the worst may be behind us. We expect to see modest improvement in non-residential construction activity this year and Wells Fargo will continue to support the industry with its construction equipment financing and leasing needs.

Highlights of the 2012 Construction Industry Forecast:

• The worst is behind us… The OQ of 114 is a strong indicator that the industry expects 2012 non-residential construction activity to improve from last year. The 2012 OQ exceeds the score of 109 recorded in 2005, near the height of the construction boom. After falling to an all-time low score of 42 in 2009, the OQ climbed to 66 in 2010 and 96 in 2011.
• …but overall numbers of contractors remains a concern. In spite of rising optimism over the last three years and strong optimism for 2012, industry executives remain cautious about the amount of available work to sustain the current number of non-residential construction contractors. About four in ten respondents (41.7%) said they expect fewer contractors in their markets by the end of the year. Only 10.4% expect the number of contractors in their area to increase in 2012.
• Equipment distributors are very optimistic. When asked about their forecast for new equipment sales, 73.3% said they expect to sell more in 2012 than in 2011, and zero respondents said they expect a decrease in new equipment sales. Optimism among construction equipment distributors was high with nearly six in ten distributors (58.1%) expecting an increase in local non-residential construction activity. Only 1.5% said they expect that activity to decrease in 2012.
• Contractors are optimistic, but not as much. While 18.3% of contractors said they expect to acquire more new equipment in 2012 than they acquired in 2011, 52.% said they would acquire the same amount and 29.2% said they expect to buy less new equipment in the coming year. 40.3% of contractors said they expect non-residential construction activity to increase in the coming year; 47.3% expect the same level; and 12.4% said they expect non-residential activity levels to decrease.

This survey marks the 36^th year in which Wells Fargo Equipment Finance, Inc. and its predecessors have published primary research findings for the infrastructure construction industry. Conducted between January 4 and January 15, 2012, the survey recorded the responses of 394 construction industry executives from across the U.S.

Download the complete Wells Fargo report here.