Wells Fargo's annual Construction Industry Forecast, based on a survey of construction industry contractors and equipment distributors, reports increased optimism for nonresidential construction activity.  Respondents relayed expectations of increased company profits and industry expansion through higher infrastructure spending.

Wells Fargo measures sentiments expressed in the survey, conducted by its Equipment Finance subsidiary, through an Optimism Quotient (OQ) which reached its third highest reading in 20 years. The 2017 OQ was at 123 compared to 108 in 2016. A score greater than 100 suggests strong optimism for increased local construction activity compared to the prior calendar year. The OQ plummeted to a recent low of 42 in 2009 and hit 130 in 2015.

 "An OQ reading at this level leads us to believe that the industry will continue to build on the momentum generated over the last few years," said John Crum, senior vice president and national sales manager of the Construction Group at Wells Fargo Equipment Finance. "Contractors have increasingly improved their businesses and this year looks to provide more opportunities to do that again."

Eight-four percent of executives polled expect moderate to significant expansion of their industry over the next two years.  Last year only 62 percent expressed such confidence. 

Equipment distributors are expected to move more new and used equipment this year with 65 percent expecting an increase in new and 66 percent an increase in used sales. Thirty-nine percent of contractors however said they plan to increase new equipment purchases and 25 percent said they would up their used equipment purchases while 13 percent said they would decrease new purchases and 11 percent will scale back used ones.  Wells Fargo called this a significant result as the corresponding numbers in 2013 were 30 percent and 20 percent respectively.  This, it says, shows the strong confidence the equipment end uses have in their businesses.  

Both the contractors and the distributors have similar concerns about business costs. The top concern among contractors continues to be employee wages and other benefits (24 percent), followed by taxes (21 percent) and healthcare costs (19 percent). Contractors are also more concerned about equipment purchase costs in 2017 than in years past with 18 percent selecting this as their top concern, compared with just 10 percent in 2016. Top concerns for distributors include increasing concerns over equipment costs (31 percent) and healthcare costs (22 percent).

As suggested by equipment cost concerns, contractors expect to rent equipment in 2017.  Although 49 percent expect rentals to remain flat, 38 percent believe it will increase compared to 27 percent last year. Forty-nine percent of contractors also cited the need for flexibility as the most important factor in the decision to rent while 29 percent said having equipment readily available is also important.

"Rental companies, distributors, and manufacturers might notice that their customers indicated increased rental costs as a driver of more purchasing behavior. Even a small increase in rental rates of less than 5 percent could cause almost one in five contractors to consider purchasing over renting equipment," said Crum.