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Wells Fargo Survey: Construction Industry Optimism Shifts to Slightly Cautious

Posted 03/10/2020
Contractors and distributors expect 2020 election impact

SAN FRANCISCO – March 10, 2020 –
Following eight straight years of strong optimism, construction industry executives say they are slightly cautious about 2020 for their business sector, according to the 44th  annual Wells Fargo (NYSE:WFC) Construction Industry Forecast released today. Despite the shift, the 2020 U.S. National Optimism Quotient comes in at 99, just one point shy of the 100 points considered strongly optimistic.

For more than four decades, Wells Fargo Equipment Finance have surveyed construction industry executives to gather insights into current business conditions and trends to measure their sentiment toward construction activity in the coming year. Conducted in late 2019, the survey tallied opinions of industry contractors, manufacturers, and equipment distributors to determine the 2020 optimism quotient (OQ) — a key indicator of whether local, nonresidential construction is likely to increase or decrease in 2020.

OQ scores above 100 signal strong optimism for increased local construction activity relative to the perceived level of activity the prior year. Scores between 75 and 99 denote more cautious or measured optimism. A score below 75 signals a more pessimistic point–of-view, where fewer executives say local construction activity will decrease rather than increase.

“The industry is straddling the line between cautious optimism and strong optimism, which is not surprising during an election year,” said James Heron, Construction Group national sales manager for Wells Fargo Equipment Finance. “Even so, the OQ doesn’t show a drastic decline, which could bode well for 2020.”

This year, hundreds of construction industry executives remain fairly optimistic when looking ahead. However, following a 20-year high of 133 in 2018, the past two years have seen a decline. The 2019 OQ reached 122.

In addition to determining the OQ, the survey posed questions about equipment sales and purchase expectations, trends in the rental market, and major cost and risk concerns that industry participants are considering keeping top of mind.

Heron encourages business leaders to look at the full report when weighing business decisions this year. Key insights from the Construction Industry Forecast include:

·       Contractors are more optimistic than distributors.
Historically, distributors have expressed higher optimism than contractors. For 2020, distributors’ optimism decreases from 121 to 97, and contractors’ optimism remain slightly more optimistic with a 101 score. Although still a decline from 2019 overall, 2020 contractor and distributor results are on par with tempered sentiments expressed in previous election years.

·       Equipment acquisition is expected to be conservative.
In 2020, distributors and contractors say they expect used equipment sales and purchases to remain the same, shifting away from increases they anticipated in 2019. Consistent with 2019, a stronger backlog of jobs and long-term confidence in the local economy are the top two key factors that would encourage the purchase of construction equipment.

·       Retaining skilled labor leads concerns.
The primary concern among contractors for 2020 continues to be the ability to hire qualified workers, ranking above the impact of employee wages and benefits, material costs, healthcare costs, interest rates, and the cost of equipment. Distributors mainly worry about equipment costs and equipment rental costs, followed closely by employee wages and other benefits and healthcare costs.

·       Election and regulations top industry risks.
Unsurprising in an election year, the uncertainty of the outcome of the election and its potential impact on the industry is a common concern among executives, with 90% indicating the 2020 election will have somewhat or a great deal of impact on the industry. Consistent with past election years, this also hinders executives’ willingness to be optimistic about the construction industry.

How does the Optimism Quotient compare to other key economic indices?
Although there are outlier years, data over time shows that the OQ tracks closely with four economic indices that are significant to the construction industry outlook: Architectural Billings Index, Private Construction Index, Industrial Production Index, and Public Nonresidential Construction Index.

More about the Construction Industry Forecast
The 2020 Construction Industry Forecast results represent the 44th year in which Wells Fargo Equipment Finance has surveyed construction industry executives to gather insight into current business conditions and trends and to measure sentiment. Responses came from 305 construction industry executives in 47 U.S. states. Nearly all of the respondents report that they have been in the industry five years or more. To learn more, download the complete survey.

About Wells Fargo Equipment Finance
Wells Fargo Equipment Finance, a Wells Fargo Commercial Capital division, provides competitive fixed- and floating-rate loans and leases covering a full range of commercial equipment for businesses nationwide as well as floor planning and inventory financing and vendor programs in selected industries in the United States and Canada. Wells Fargo Equipment Finance is a leading bank-affiliated equipment leasing and finance business in the United States by asset portfolio and annual originations, with more than 335,000 customers and 2,500 team members. Wells Fargo Equipment Finance is the trade name for certain equipment leasing and finance businesses of Wells Fargo Bank, N.A. and its subsidiaries. Equipment financing transactions are provided in Canada by Wells Fargo Equipment Finance Company.

About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,400 locations, more than 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 32 countries and territories to support customers who conduct business in the global economy. With approximately 260,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2019 rankings of America’s largest corporations. News, insights and perspectives from Wells Fargo are also available at Wells Fargo Stories.

 
Author
Trina Shepherd
Organization
Wells Fargo
Phone Number
312-339-0012

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