From a global health pandemic to civil unrest to an historical election year, 2020 tested the resilience of most industries. This was an especially important year for Wells Fargo to touch base with our construction industry executives as they reflected on the complicated year, and anticipated what 2021 might bring.
In March, Wells Fargo released the results of its 45th annual Construction Industry Forecast. Understandably, the results were mixed with an initial decline in sentiment about the nonresidential construction market as the year ended, followed by renewed optimism about what the second half of 2021 might hold for the sector.
Survey results showed that leaders ended 2020 feeling cautiously optimistic, with a 2021 Optimism Quotient score of 78, representing a 21-point drop from 2020. Much of the drop was driven by near-term uncertainty stemming from a tumultuous election cycle and a global pandemic. The survey, conducted between November 9 and December 7, showcases results based on responses from 226 construction executives in 44 states.
Although results indicate a decline in optimism among both contractors and distributors, it is worth noting that the outlook of the construction industry as a whole remains positive.
Here are key findings that stem from the industry leaders’ sentiment when surveyed:
- Pessimism for nonresidential construction activity continues to grow among executives.
- While executives are becoming more pessimistic regarding nonresidential construction activity, their optimism for residential construction activity strengthens.
- Of the executives who think that nonresidential construction activity will remain the same, most feel it will increase in the year’s second half as vaccines continue to rollout.
- The outlook of the construction industry as a whole remains positive, with 59% believing it will expand in the next two years.
Trends in rentals and purchases
- Overall trends in equipment rentals and purchases among contractors remain unchanged.
- More distributors report renting out less equipment now than a year ago; however, they continue to utilize the majority of their fleet.
- Executives expressed uncertainty about the local and national economy, political changes and public health as it relates to COVID-19.
- Potential tax increase concerns rose from 4% in 2020 to 13% voicing tax concerns in 2021.
Despite some lingering pessimism regarding commercial construction, one key factor contributing to a more positive outlook is how well the industry weathered the global turmoil caused by the pandemic. Many who contacted their banks for extensions and concessions ended up not needing them. Contractors especially proved to be more prepared to handle the downturn and continue to meet their financial obligations.
After a year of great uncertainty, it was no surprise that we entered the new year with some hesitation. The bottom line is cautious optimism captured by the survey is not cause for continued concern. The commercial construction industry adjusted and adapted well, which contributes to a more optimistic short-term and long-term outlook going forward.
As we shift our focus to what’s ahead, please reference the full report as you weigh future business decisions against what your industry peers have to say. You can download it at https://www.wellsfargomedia.com/construction-industry-forecast/.
