Construction industry hopeful about 2021 despite dip in optimism index

A survey conducted by Wells Fargo late last year found that the construction sector is guardedly optimistic about 2021 despite a significant drop in the optimism index from 2020. In its 45th annual Construction Industry Forecast, the bank queried hundreds of industry executives to determine the 2021 U.S. National Optimism Quotient (OQ). Survey results show that leaders ended 2020 feeling cautiously optimistic with a 2021 OQ score of 78, although that score represents a 21-point drop from 2020.

“From a global health pandemic to civil unrest to a historical election year, it was more important than ever to survey our construction industry peers to understand their sentiment as they reflected back on the past 12 months and anticipate what 2021 might bring,” said James Heron, national sales manager for Wells Fargo Equipment Finance’s Construction Group.

The OQ is the survey’s primary benchmark for measuring the degree of optimism in the nonresidential construction business for the coming year. The survey posed questions about equipment sales, purchase expectations and rental market trends, while also exploring major cost and risk concerns that industry executives were considering as they geared up for the new year.

At 78, the 2021 OQ indicates optimism tempered with restraint. Any score between 75 and 99 is considered more cautious or measured optimism. An OQ score of 100 or more represents strong optimism for increased local construction activity relative to the perceived level of activity for the prior calendar year. A score below 75 signals that most responding executives believe local construction activity will decrease — a more pessimistic point of view.

The 2021 score represents a significant dip compared to the 2020 OQ of 99, which was just shy of the 100 points considered strongly optimistic.

Other key findings include:

• Pessimism for nonresidential construction activity continues to grow among executives. While executives are becoming more pessimistic of nonresidential construction activity, their optimism for residential construction activity strengthens. Of executives who think that nonresidential construction activity will remain the same, most feel it will begin to increase in the year’s second half as vaccines continue to roll out.

• The outlook of the construction industry as a whole remains positive, with 59 percent believing it will expand in the next two years.

• 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 percent in 2020 to 13 percent voicing tax concerns in 2021.

The 2021 Construction Industry Forecast results represent the 45th 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 more than 200 construction industry executives in 44 U.S. states. Nearly all of the respondents report that they have been in the industry five years or more.