Wells Fargo Survey: Construction Activity Widely Expected to Improve in 2015
Construction contractors and equipment distributors have continued optimism about local, nonresidential construction activity in 2015 and expect a strong rental market and increasing equipment acquisitions, according to a survey from Wells Fargo Equipment Finance, a subsidiary of Wells Fargo & Company (NYSE:WFC) .
Wells Fargo released the findings of its 2015 Construction Industry Forecast today. The survey’s primary benchmark for measuring construction industry contractor and equipment distributor sentiment is the Optimism Quotient (OQ). The OQ reached an historic high of 130, up six points from 124 in 2014 and up considerably from the survey low of 42 in 2009. This reading is a strong indication that construction contractors and equipment distributors are optimistic that local nonresidential construction activity will improve in 2015 compared with 2014.
“The timing of this survey is particularly significant because it coincided with a period of sharp decline in crude oil prices at the beginning of 2015,” said John Crum, senior vice president and national sales manager of the Construction Group at Wells Fargo Equipment Finance.
“We thought the predictions of lower capital expenditure related to construction in the energy sector might impact more of our survey population and dampen enthusiasm about the year ahead,” Crum added. “Yet contractors and equipment distributors indicated that the trajectory of the broader construction industry is still going in the right direction: up.”
A larger percentage of executives (63 percent) said they expect activity levels in nonresidential construction to increase in 2015 compared with 55 percent who expected it to increase in 2014.
This year’s increase in the OQ marks the third time in four years that it has reached a new high, which signals confidence that growth has been accelerating over that time. Coinciding with the higher optimism reading is anticipated growth in rentals and increase in new and used equipment acquisition.
(surveyed in January)
Wells Fargo Equipment Finance annual Construction Industry Forecast
Equipment rental remains strong
The multiyear trend in equipment rental growth is set to continue in 2015. The majority (62 percent) of responding equipment distributors and rental companies said they are renting more equipment to contractors than a year ago, and 60 percent said they plan to increase the size of their rental fleet in 2015. Contractors who said they rented heavy construction equipment in 2014 said they will increase rental activity in 2015. Thirty-seven percent said they would rent more than last year, compared with 17 percent who said they would rent less. Contractors cited the need for project-specific equipment most frequently (70 percent) as the reason why they choose to rent rather than buy.
Equipment acquisitions expected to increase
Ninety-two percent of contractors surveyed said they purchased new and/or used equipment in 2014. Ninety-two percent said they plan to purchase in 2015. More contractors than a year ago say they will increase new and used equipment acquisitions.
- 34 percent of contractors said they plan to increase new equipment purchases this year, up from 26 percent in 2014.
- 30 percent of contractors said they plan to increase used equipment purchases this year, up from 22 percent in 2014.
Distributors are more optimistic about sales increases in new and used categories than in either of the previous two years. Most (70 percent) distributors said they expect new equipment sales to increase compared with 2014 and 73 percent of distributors expect their used equipment sales to increase compared with 2014.
Cost concerns in 2015
Contractors and distributors were asked what their top three concerns were among several cost categories. Contractors said they are most concerned with Employee Wages and Benefits (69 percent) followed by Healthcare Costs (58 percent) and Taxes (53 percent). Distributors are most concerned with Healthcare Costs (68 percent), Equipment Costs (67 percent) and Employee Wages and Benefits (59 percent).
To learn more, including key opportunities and risks for the industry, download the complete report, here.
Wells Fargo Equipment Finance provides competitive fixed- and floating-rate loans and leases covering a full range of commercial equipment for businesses nationwide as well as floor planning and inventory financing, and vendor programs in selected industries in the United States and Canada. Wells Fargo Equipment Finance is a leading provider of equipment leasing and finance solutions in the United States and Canada with more than 130,000 customers, and 1,100 team members. Wells Fargo Equipment Finance is the trade name of the equipment finance businesses of Wells Fargo Bank, N.A. and its subsidiaries. Canadian business is transacted by Wells Fargo Equipment Finance Company.
About Wells Fargo
Wells Fargo & Company (NYSE:WFC) is a nationwide, diversified, community-based financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, 12,500 ATMs, and the internet (wellsfargo.com), and has offices in 36 countries to support customers who conduct business in the global economy. With approximately 265,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2014 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at Wells Fargo Blogs and Wells Fargo Stories.
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