SAN FRANCISCO – With some regional variation, U.S. residential and non-residential construction activity is expected to remain weak through most of the coming year, according to the 2009 Wells Fargo Construction Industry Forecast. Survey respondents were slightly less pessimistic about non-residential construction activity.
In its 33rd edition, the Forecast – published by Wells Fargo Construction, a division of Wells Fargo Equipment Finance, Inc. – is based on telephone interviews with more than 900 executives of construction contracting and equipment distribution companies from around the country. Surveys for this year’s Forecast were conducted during a six-week period in October and early November 2008, at a time of particularly heightened economic uncertainty.
“We took the pulse of the industry during a period of unprecedented turmoil, and that certainly influences the numbers we are seeing,” said Ron Riecks, general manager for Wells Fargo Construction. “There is no doubt that there are serious economic issues yet to be faced, yet construction is a cyclical industry. We’ve been down before, and we’re confident the construction industry will rebound. 2009 is going to be a difficult year yet a government stimulus package with an infrastructure revitalization component could go a long way to helping this industry recover before the end of the year.”
The Forecast once again highlights that construction is a regional industry. The Mountain Region (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming) had the largest share of contractors (43 percent) and distributors (48 percent) who anticipate non-residential construction activity levels will stay the same in 2009. Mountain Region contractors also have the most ambitious equipment-acquisition plans. More than one-third (34 percent) say they will purchase new equipment, well above the 20 percent national average.
Across the country many survey respondents expect comparable levels of construction activity in the non-residential and residential sectors. However, 43 percent of contractors and 39 percent of construction equipment distributors foresee less non-residential activity, while 55 percent and 48 percent, respectively, expect residential work to decrease. Eleven percent of both contractors and distributors believe residential construction activity will increase. Non-residential construction appears to be in slightly better shape given that 15 percent of contractors and 17 percent of distributors forecast an increase in that type of work.
Since many more respondents see activity decreasing than increasing in 2009, the Wells Fargo Optimism Quotient (OQ) fell to 42 – down from 80 in last year’s Forecast and continuing a four-year decline from its peak of 109 in 2005. The OQ is the Forecast’s primary indicator of respondents’ expectations of local construction activity and is based on responses to questions about local construction activity for the coming year. In general, an OQ score of 100 or more represents high optimism for increased local construction activity. A score above 75 represents more cautious or measured optimism. This year’s lower score indicates that many fewer respondents think 2009 construction activity will increase than think activity will decrease – a decidedly pessimistic point of view.
While 2009 is shaping up to be a challenging year, most contractors (73 percent) and equipment distributors (63 percent) who foresee a decrease in construction activity see a turnaround coming 12, 18 or 24 months from the time of survey in October 2008. The largest share of these distributors (28 percent) and contractors (22 percent) predict that improvement will come 12 months from the time of survey.
Key findings about industry issues and opportunities in the 2009 Wells Fargo Construction Industry Forecast show that 1) the recession poses a major challenge for the construction industry, 2) the residential market continues to deteriorate while nonresidential activity will fare only slightly better, and 3) most executives see recovery 12, 18 or 24 months from the time of survey. Other trends include:
- Equipment – More contractors plan to buy used equipment in 2009 than in 2008; the average age of fleets is up substantially.
- Rental – Contractors expect to rent equipment slightly more often; rental rates are expected to hold steady; and distributors’ share of rental market has grown slightly.
- Financial – Construction firms are focused on staying profitable; the credit crunch has not been as prevalent among contractors and distributors; and materials and fuel costs are still a concern.
- Business Strategy – Financing programs are the top strategy for increasing sales; distributors expect the number of contractors to decline; and more companies are buying/selling equipment on the Internet.
- Issue and Opportunity – Focus shifts toward commercial construction in 2009 as an area of opportunity; lack of work overshadows other industry problems; and more executives are concerned with financial issues than before.
About the Wells Fargo Construction Industry Forecast
Now in its 33rd edition, the annual Construction Industry Forecast has surveyed contractors and equipment distributors throughout the country on their perceptions of the state of the industry and trends for the coming year. Results are based on telephone interviews with executives of approximately 450 construction contracting companies and 450 equipment distributors nationwide conducted in October and early November 2008.
About Wells Fargo Construction
With more than $5 billion in managed receivables and over 250 team members, Wells Fargo Construction provides commercial equipment financing primarily in the non residential construction industry. It serves the financial needs of North American construction contractors who work on the following types of projects: highway and street construction, grading and excavation projects, concrete and asphalt work, utility contracting, bridge and tunnel construction, and sand and gravel production. Construction equipment manufacturers as well as distributors that sell and rent construction equipment benefit from Wells Fargo Construction’s in-depth industry knowledge, commitment to superior service and long-standing relationships.
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