Wells Fargo Report: Contractors and equipment distributors optimistic about 2015

3/5/2015 8:41:24 AM by

Contractors and equipment distributors are feeling particularly optimistic about non-residential construction activity in 2015, Sharon O'Malley of Construction Dive reports. According to the Well's Fargo "2015 Construction Industry Forecast," — which O'Malley cites – nearly all contractors and equipment distributors surveyed expect to see year-over-year improvement in the non-residential sector.

Sixty-three percent of construction executives said they expect non-residential construction activity to increase this year, up from the 55 percent who expressed optimism in 2014.

For the report, Wells Fargo Equipment Finance gathered responses from construction contractors and equipment distributors across the U.S., seeking to identify key industry trends and gauge their level of optimism about the coming year, as measured by the firm's Optimism Quotient.

This year's Optimism Quotient hit an all-time high of 130, surpassing last year's high of 124. During the recession, the reading dipped as low as 42 in 2009, but has been rebounding ever since. In 2013, the Quotient dipped, but was still much higher than its recession levels, and the Quotient has seen gains in both 2014 and 2015.

In addition to providing a gauge of leaders' optimism, Wells Fargo also identifies some of the notable industry trends to watch this year.

Equipment purchases to increase in 2015:

"We expect equipment acquisition in 2015 to increase over 2014. More contractors than a year ago say they will increase new and used equipment acquisitions, while more distributors expect sales of both new and used equipment to increase," Wells Fargo says. Moreover, this year, a record percentage of contractors (30 percent) plan to increase their purchases of used equipment.

Rentals of heavy construction equipment will rise:

Equipment rentals have been growing for several years. This year's report showed that contractors who rented heavy construction equipment in 2014 plan to boost their rental activity further in 2015.

In a recent article, we discussed a related topic, addressing some of the reasons why the value of used agricultural equipment is on the rise. We noted that Congress recently approved the Tax Extenders Bill, which extended a number of tax incentives, including one on used agriculture equipment. Many industry insiders consider this one of the main contributors to the increased value of equipment.

Cost concerns considered the major challenge:

Wells Fargo's report found that while contractors and industry professionals are overall very optimistic about the future, this optimism is somewhat tempered by cost concerns. Among their main concerns are the expense of employee wages and benefits, along with healthcare costs and taxes, in that order. Many are also worried about the cost of equipment.

O'Malley notes that the positive report came at a key time, and even "surprised some industry observers who feared the nosedive in oilfield-related construction might dampen enthusiasm about what's ahead." Yet, as "equipment rentals are strong and equipment acquisitions are expected to increase, distributors are optimistic that sales will flourish," O'Malley writes.

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2015 is shaping up to be a good year for the construction industry.