Construction Industry Expects Strong Profitability Despite Supply Chain and Labor Challenges

According to Wells Fargo’s 2022 construction industry forecast, there is renewed optimism among nonresidential contractors and distributors for increasing profits and new equipment sales in the year ahead. The report’s benchmark U.S. national Optimism Quotient (OQ) registered 112, a 44% increase from its mark of 78 a year ago, showing leaders ended 2021 feeling cautiously optimistic.

“Finding skilled workers and supply chain disruptions are executives’ two biggest concerns,” James Heron, national sales manager for the Wells Fargo equipment finance construction group, which has sponsored the report for its 46th year, said. “However, in this rapidly changing environment, they also believe that the passing of the new infrastructure bill and historically low interest rates will create new opportunities in the future.”

Wells Fargo queried hundreds of industry executives nationwide in September 2021 to determine this year’s OQ, an outlook measure for nonresidential construction business for the year ahead. 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 112, the 2022 score represents a significant increase compared with the 2021 OQ of 78 and exceeds the 2020 OQ of 99. 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. Any score between 75 and 99 is considered more cautious or measured optimism. A score below 75 signals that most responding executives believe local construction activity will decrease.

Forecast Highlights

  • Optimism rebounded from 78 up to 112, according to the OQ.
  • Contractors and distributors alike are optimistic in their outlook for local, nonresidential construction activity, as roughly half expect it to increase compared with 2021.
  • Executives said that the greatest risks to the construction industry are the availability of skilled workers and supply chain disruptions, followed by rising material costs and inflation.
  • Key opportunities, noted by executives, lie in an improved overall economy, improved qualified labor availability, the recent congressional passage of the infrastructure bill and low interest rates.
  • Distributors are largely optimistic about sales of new equipment, with 61% stating they expect an increase in sales. Meanwhile, contractors have mixed expectations, as 43% feel sales will remain the same, 38% feel they will increase and 14% feel they will decrease.

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