Wells Fargo: ‘Cautious optimism’ for the future of non-residential construction


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When the last Wells Fargo construction industry survey was conducted, contractors and equipment dealers were somewhat optimistic about the non-residential market, scoring 99 in the financial company’s “optimistic quotient” for 2020. (OQ of 75 to 99 is “cautiously optimistic.” “Over 100“ very optimistic ”, less than 75 a pessimist.) Then the Covid-19 pandemic hit, changed everything. Despite the difficulties experienced in the past year, the industry remains optimistic, albeit far less than it was before the pandemic. The new Wells Fargo Industry Survey rated the optimism quotient in the construction industry at 78. This is 21 points below last year’s pre-epidemic forecast but still barely within the range of “cautious optimism”. Wells Fargojem Heron, national sales director for the construction group for Wells Fargo Group, attributes much of the decline in optimism to the near-term uncertainty brought on by last year’s election and the pandemic. The survey was conducted between November 9 and December 7, and consisted of responses from 226 construction executives in 44 states, however, the long-term outlook suggests a more optimistic outlook, Heron says. In all, 60% of those surveyed believe that the construction industry will expand within the next two years. Most of them also believe that their net profits will remain the same (34%) or increase (41%) in 2021. “Don’t be scared of it a little,” Heron said of 78 OQ. “I think in the long run, everyone says the industry will grow. Profits will grow. Industry executives, although now pessimistic about commercial construction, are saying that their profitability in 2021 versus 2020, they expect to increase.” He also believes that contractors It is in a better position to handle the economic downturn, should it occur, according to their judgment. Overall performance in 2020 and its ability to meet financial commitments in equipment financing. “I think they have adapted very well to this Covid pandemic,” he says. “And I am really impressed and optimistic about the short and long term prospects for the industry.” A bigger year for equipment sales? One of the surprises in the Heron survey was the apparent disconnect between contractors and equipment dealers regarding the purchase of used construction equipment in 2021, while 54% of dealers expect sales of used equipment to rise, and only 20% of contractors said they plan to purchase used equipment. In contrast, 30% of contractors expect to purchase new equipment, while 39% of dealers expect new equipment sales to rise, and Heron believes that the distributors’ view is a more accurate view of used sales, mainly because they were already seeing the supply issues and price rises that She was waiting for new equipment, and says of the new equipment: “Prices are going up.” “New equipment deliveries have slowed, due to obstacles in supply chains and component manufacturers. So I think this will surprise some contractors. I think they will buy more used equipment in 2021 than they initially thought.” But that doesn’t mean a bad year for new equipment. He notes that major manufacturers like Cat and Deere are expecting increased revenues, and he is not expecting discounts on new equipment. “I think the cost of new equipment is going up, and it’s all going to be passed on,” he says. “I think they will be able to pass that on because I believe the industry is still going strong, which is why we are seeing Cat and Deere raising revenue projections and profitability projections, and their stocks are doing well.” For the full report, click here.


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