While its ultimate focus is the future of the construction equipment business, Wells Fargo's Equipment Finance division has some predictions for residential construction as well. The company's 2015 Construction Industry Forecast, presents results of a survey it has conducted for the last 19 years of industry executives representing large and small contractors as well as equipment distributorships and equipment rental companies.
Wells Fargo's survey attempts to track industry optimism using what it calls the Optimism Quotient (OQ). John Crum, National Sales Manager for the Equipment Finance Construction Group said that, after tumbling to an all-time low of 42 in January 2009, the OQ has climbed steadily, reaching new highs in three of the last four years and landing this year at 130, up six points from 2014.
Crum said "In the nearly 20 years that we've been tracking the OQ we've never seen such widespread optimism about the direction of the industry compared to the prior year." He noted that the 2015 number is particularly significant as the survey was conducted during a period of sharp decline in crude oil prices leading to an assumption that the energy sector might negatively impact the survey and dampen enthusiasm about the near future. "Yet overwhelmingly the industry indicated," he said, "that the trajectory of the broader construction industry is still going in the right direction - up."
As the OQ has trended up over the last four years the residential and non-residential construction segments have not moved in lockstep. This year the number of respondents who expect non-residential construction to increase shot up 8 points to 63 percent while residential construction expectations dropped from 56 percent expecting an increase in 2014 to 52 percent this year.
Few respondents over the last four years have looked for a decrease in activity in either sector. Responses in that regard have been stable in the mid-single digits.
Among those respondents who are not looking for an immediate uptick in either sector 44 percent indicated they did expect to see at least some improvement in the latter part of 2015. However, a quarter of these executives said that any improvement in residential construction wouldn't occur until the second half of 2016 or later.
Respondents were also asked about their expectations for the industry as a whole over the next two years. More than two-thirds of respondents said that a "moderate expansion of the U.S. construction industry" would likely occur within the next two years. Another 16% were confident the construction industry would maintain a mostly flat growth trajectory for the next two years. About one in ten said they expect either moderate (7%) or significant (2%) contraction in the U.S. construction industry.
In her Construction Industry Overview accompanying OQ report Anika Khan, Senior Economist, Wells Fargo Securities said she also expects construction activity to accelerate further in 2015 and that single-family construction should improve as well. This sector, she said, grew at a solid clip in 2014 with much of that activity occurring in the second half of the year. Improving employment and income growth should allow this to continue. "The largest impediments to a more robust recovery in the housing market however," Khan says, "have been the low level of inventories and first-time homebuyers. Still, low mortgage rates and easier credit standards should help boost activity."
