Highest Wells Fargo National Optimism Quotient in 20 Years

February 28, 2018
Wells Fargo Equipment Finance has released its 2018 Construction Industry Forecast

Wells Fargo Equipment Finance has released its 2018 Construction Industry Forecast based on a survey of construction industry executives in 44 states completed in November 2017.

The survey asked respondents their opinions and observations on subjects including projections for nonresidential construction for this year compared to last year, sales forecasts for used and new equipment, equipment acquisition plans, and what the next two years may bring to the industry.

Results from the survey are analyzed to measure industry confidence, translated as the Optimism Quotient (OQ).

This year's Wells Fargo Optimism Quotient is 133, a very positive ten-point increase over 2017's OQ. This is the highest OQ in 20 years. An OQ score greater than 100 indicates strong optimism for increased local, non-residential construction activity versus the prior calendar year.

 “It’s exciting to see this level of optimism. It reflects what we have heard from our customers about the strength of the market,” said John Crum, senior vice president and national sales manager of the Construction Group at Wells Fargo Equipment Finance. “Many industry participants feel that this could be one of their best years ever.”

The 26-page report, which pools distributor and rental companies into one group, includes these key findings:

  • 73 percent of contractors said the most likely scenario in the next two years is expansion, while those who said that the current level of activity will remain static increased to 19 percent.
  • Contractors who own their equipment are keeping their machines longer, 43 percent keeping their equipment 8 years or more. This figure is 10 percent higher than in 2015.
  • 76 percent of distributors said their sales of new equipment will increase; 78 percent said sales of used equipment will increase.
  • 37 percent of contractors said they will purchase more new equipment; 27 percent indicate they will purchase more used.
  • 55 percent of rental companies plan to expand their rental fleets. Only 7 percent say they will decrease the size of their fleets.

Of note: The survey asked companies who rent construction equipment about what would happen in the event that the cost of renting should increase. Respondents indicated that an increase in rental costs of 5 to 15 percent would make 63 percent of those surveyed consider purchasing equipment rather than renting.

“That such a small increase in rental costs would make companies who rent equipment consider buying instead of renting indicates that the industry is at equilibrium between availability and pricing of rental equipment,” said Crum.

  • Contractors said finding and paying for skilled labor and healthcare costs are top cost concerns.
  • 92 percent of respondents said net profits will either remain the same or increase from 2017, with 61 percent expecting an increase in profitability.

When asked, "Which factors pose the greatest risk to the U.S. construction industry in 2018?"  Respondents said political and regulatory uncertainty (35%), national economic uncertainty (15%), and local economic uncertainty (9%) were at the top of their concerns.

This year, the 42nd Construction Industry Forecast analyzed and compared the data in four other economic indices for the construction industry outlook, including the Architectural Billings Index, the Private Construction Index, the Industrial Production Index and the Nonresidential Construction Index. Although there are differences in any given year, the overall data shows that the Optimism Quotient tracks closely with these economic indices.