Growth in the construction industry is expected to continue at a modest rate according to an industry forecast published by the CIT Group.
This report is based on in-depth interviews with 900 construction equipment distributors and construction contractors throughout the United States.
Distributors are classified as primarily dealing in light equipment (pumps, compressors, generators, etc.); general equipment (backhoes, loaders, etc.); or heavy equipment (bulldozers, excavators, cranes, etc.). Contractors are classified as builders (residential, non-residential and commercial structures) and non-builders (earthmoving, water and sewer systems, paving, logging, etc.).
Builders and non-builders expressed almost identical expectations: 34 percent of the former group and 33 percent of the latter foresee greater activity, while 15 percent and 16 percent, respectively, anticipate reduced levels of construction activity, the report found. Forty-five percent of general equipment distributors expect to see more construction activity this year.
Of the 41 percent of distributors surveyed who provide rental equipment, fewer expect to see gains in rental equipment income and inventory than they did a year ago. The report found that in 1996, half of all those who rented equipment foresaw increased income; that figure is down to 47 percent for 1997. The percentage of those expecting increased inventories has dropped from 46 percent to 41 percent. This drop is attributable to heavy equipment distributors: last year, 48 percent of this group predicted increased rental income and inventories. Those figures have dropped to 39 percent and 33 percent, respectively, in this year's forecast, according to the report.
The sections of the country that will experience the greatest increases are the South Atlantic and Pacific regions, according to the report.
Why do contractors rent rather than buy equipment? According to the study, a "limited need" continues to be the most-frequently cited reason, mentioned by 62 percent of contractors who rent equipment. An "unexpected need" is becoming a more popular reason (mentioned by 27 percent of those who rent, up from 24 percent in 1996), while the cost of renting continues to decline in relative importance (mentioned by fewer respondents for the fourth straight year).
It's not surprising, then, to find that 43 percent of contractors who rent or lease expect to pay higher rates in 1997, while less than 1 percent plan on spending less. According to the report, builders and non-builders agree on the lease/rental rate issue: 42 percent of the former group and 43 percent of the latter say they expect to pay higher rates in 1997.
The study found that the main sources for equipment rentals are essentially unchanged from a year ago, although slightly fewer contractors (17 percent, down from 19 percent) will be renting from distributors in 1997. Non-builders will be relying more on "other" sources (16 percent, up from 8 percent). According to the study, regionally, contractors in the Pacific region are most likely to patronize rental companies (77 percent of respondents' rental equipment will come from that source), while contractors in the East North Central region are the most likely to rent from other contractors (26 percent of their rental equipment is owned by their counterparts).
For the first time since the 1993 forecast, crawler/wheel loaders will not be the type of equipment rented most frequently by respondents. They are now in third place, behind excavating equipment and loader/ backhoes. Gaining the most votes in rental preference are power tools and airhammers - especially among builders. According to the report, concrete equipment (such as saws) and compressors are falling in frequency-of-rental.
Thus the forecast for 1997 is that the modest growth of the past few years will continue in 1997, the report found. Most sectors of the construction industry will see some increase in activity.