All construction is local: Results vary widely by region

While the outlook for 2008 is for a moderate year overall, there are marked differences in confidence levels depending on where you live and work.

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All construction is local: Results vary widely by region #1
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The results of the 2008 Wells Fargo Construction Industry Forecast highlights once again that, despite its size and influence on the national economy, construction continues to be a local industry. It's helpful to take the temperature of the construction business as a whole, but for most construction professionals, there's probably a lot more value in knowing the industry's health in their own corner of the world.
While the outlook for 2008 is for a moderate year overall, there are marked differences in confidence levels depending on where you live and work.
Optimism Quotient (OQ) scores in the 2008 Forecast range from highs in the 90-point range in the West South Central and East South Central regions, to a sub-60 rating in the New England states. In general, an OQ score of 100 or more signals a high level of optimism about increased local construction activity; a score above 75 represents more cautious or measured optimism; and a score below 75 signals a more pessimistic point of view.
Three of the nine U.S. regions in this year's Forecast have higher OQ scores than a year ago, indicating a more positive mood about the coming year. One region's score remained the same and scores in two regions declined by five or fewer points, foreshadowing a comparable year overall. Scores were notably lower in three regions, indicating a sentiment that a more challenging year is ahead.
The following regional overviews take a closer look at what's ahead for the construction industry in your part of the country.
New England
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont
KEY FINDINGS
Contractors more positive about 2008 prospectsEquipment spending rates above national averageLack of work a serious concern for contractors
After three consecutive years of decline, the Optimism Quotient for the New England Region improved by a double-digit margin in our 2008 Forecast, which means that more executives in this part of the country are looking for a better year ahead. Despite this good news, New England is again the least optimistic region in this year's survey.
Contractors are much more positive than distributors this year. Two-thirds of contractors expect construction activity to increase or stay the same in 2008, an enormous improvement compared to the 2007 Forecast when half projected a downturn. Most New England contractors expect to have at least as many bidding opportunities in 2008 and 84 percent, up from 70 percent in the last Forecast, think 2008 will be as good as or better than 2007 overall.
More than 60 percent of distributors expect nonresidential construction activity to stay the same or increase in 2008, but more than half (52 percent) project a decline in residential activity. Nineteen percent of distributors see a better year ahead overall and 48 percent think it will be about the same as 2007.
New England contractors continue to invest in their companies by purchasing new and used construction equipment. About one-fourth plan to buy new equipment in 2008, spending about 45 percent more than the national average on their acquisitions. Thirteen percent plan to buy preowned equipment.
Almost three-fourths of New England distributors and 88 percent of contractors said their net income will increase or stay the same in 2008; those expecting income to grow said it will be up about 15 percent on average.
Even so, more New England distributors are concerned about their company's profit margins and cash flow than the national average of their counterparts. Seventy-eight percent of distributors, compared to 71 percent nationally, consider insurance costs to be a serious problem for their industry. More than half of New England contractors said lack of work is a serious problem, compared to a national contractor average of 44 percent.
About one-fourth of contractors said commercial projects are their best opportunity for 2008; 54 percent said residential construction is the most promising area. Forty-eight percent of distributors see their best opportunities in general construction, which is the highest figure for any region in this year's survey. Fifteen percent of distributors said commercial construction holds the most potential for the coming year.
Middle Atlantic
New Jersey, New York, Pennsylvania
KEY FINDINGS
Region is one of Forecast's most optimisticNon-residential projects appear promisingEquipment sales prospects look positive
The Middle Atlantic Region showed the strongest year-over-year Optimism Quotient improvement in this year's Forecast by climbing 14 points to a comparatively positive 86. After five consecutive years as one of the survey's three least positive regions, this part of the country is one of the three most optimistic in our 2008 Forecast.
Distributors and contractors are of like mind this year with OQ ratings of 85 and 87, respectively. More than 70 percent of distributors and 80 percent of contractors said 2008 will be at least as good as 2007.
Almost half of distributors expect residential building to slow, but considerably more than the national average (88 percent vs. 80 percent) think nonresidential construction activity will increase or hold steady.
Middle Atlantic contractors are more optimistic about an increase in bidding activity than the average of contractors nationwide. Eighty-six percent of contractors expect construction activity to increase or stay the same in 2008. Executives who believe activity will increase point to lower interest rates and specific projects planned to support their view.
About one-fourth of distributors and contractors expect their company to generate more net income in 2008. On average, distributors who see income increasing are looking for 9 percent growth; contractors are more optimistic with a 15 percent growth estimate.
Distributors in the Middle Atlantic Region are among the most positive when it comes to their 2008 equipment sales potential. Almost 90 percent of distributors expect to sell at least as much new equipment as they did in 2007. At the national level, 83 percent of distributors expect their new equipment sales to grow or hold steady. Region distributors' optimism seems justified because 40 percent of contractors plan new equipment purchases, compared to a national average of 30 percent. Seventeen percent of contractors expect to buy used equipment.
One-third of distributors see their best 2008 opportunities in commercial projects or commercial construction. Commercial construction, bridge and road work, and residential projects rank highly as opportunities for contractors.
Fifteen percent of contractors said lack of work is the single biggest problem they will face in 2008. Survey-high percentages of both contractors and distributors see high insurance costs as one of their most serious problems. Executives here are more concerned about the cost of capital than their peers in most other regions.
East North Central
Illinois, Indiana, Michigan, Ohio, Wisconsin
KEY FINDINGS
Optimism Quotient holds steady in regionContractors invest in construction equipmentLack of work worries region contractors
After two consecutive years of decline, the Optimism Quotient for the East North Central Region held steady in our 2008 Forecast at a relatively cautious 71.
While almost half of East North Central contractors (45 percent) think 2008 will be comparable to 2007, 32 percent expect construction activity to decline in the coming year. About one-fourth said activity will increase. Almost half the contractors in this region expect bidding opportunities to stay about the same; 17 percent expect more chances to bid and 19 percent, the same number as in last year's survey, think the outlook is better for 2008 overall. More contractors here than in any other region (35 percent) say the outlook is worse.
Distributors are more optimistic. Almost 80 percent think 2007 will be as good as or better than 2008 overall, and 51 percent said non-residential construction activity will be at least as robust in the coming year. Only 30 percent think residential construction activity will increase. When it comes to their own bottom lines, East North Central construction executives are more positive about the future. One-third of distributors and 27 percent of contractors said net income will rise; both expect increases in the 21 percent range. About half of each group said their net income will stay about the same.
Region contractors operate the oldest equipment in the country, with an average age of almost 10 years, compared to a national average of less than 8 years. Even so, just 10 percent plan to buy new equipment in 2008, the lowest number in this year's Forecast; however, at more than $165,000, their new equipment budgets are among the highest in the country. Almost 20 percent of contractors plan to purchase used equipment. About one-third of distributors expect to sell more equipment in the coming year, equaling the national average.
The worker shortage appears less severe here than elsewhere. Fewer than half of distributors and 59 percent of contractors list a lack of skilled workers as a serious problem; for contractors, that's the lowest percentage of any region in the country. More contractors in the East North Central Region than anywhere else (71 percent) said lack of work is a serious 2008 problem and more than one-third consider it to be the industry's most serious problem.
Contractors view road and bridge work, commercial construction and residential construction as top business opportunities. Distributors predict that general construction, commercial construction, and road and bridge work will deliver their best opportunities.
West North Central
Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota
KEY FINDINGS
Region slightly more optimistic about 2008Contractors in the market for new equipmentScarcity of workers a challenge for regional industry
The Optimism Quotient for the West North Central Region rose slightly to 79, indicating that more local construction executives than last year expect 2008 to be an improvement over 2007.
More than three-fourths of contractors said construction activity will increase or stay the same in 2008 and close to that many said the outlook is for a better or at least comparable year overall. About one-fourth of contractors see more bidding opportunities. One-third of distributors see a better outlook in the coming year and 54 percent think 2008 will be about the same as 2007. Two-thirds of distributors said they believe residential construction activity will be at least as strong in 2008 as it was in 2007.
West North Central contractors have some of the most ambitious equipment-buying plans in the country. Almost 40 percent expect to buy new equipment in the coming year, well above the 30 percent national average, and 30 percent (vs. 20 percent nationwide) plan to buy used equipment. Of those that plan to buy, region contractors expect to spend more than $105,000 on their purchases, compared to the $98,000 national average.
For their part, 44 percent of distributors expect to sell more new equipment and an equal number think used-equipment sales will increase. Those estimates are higher than national averages of 33 percent and 35 percent, respectively.
Eighty-five percent of West North Central distributors and three-fourths of contractors project that their net income will increase or stay the same in 2008. Contractors who expect net income to rise expect a 51 percent increase on average, with a 58 percent average income-growth projection. Distributors are even more bullish about their prospects.
Three-fourths of contractors and close to 60 percent of distributors rate scarcity of qualified workers as one of the industry's most serious problems, with 25 percent of contractors saying that the worker shortage is their most severe problem. Twenty-three percent of contractors and 22 percent of distributors said high insurance costs are their No. 1 problem for 2008.
More distributors here than the national average said road and bridge projects are their best business opportunities for the coming year; 22 percent said they will focus on general construction. Contractors also see road and bridge projects as a top opportunity, along with residential construction, commercial construction, and water and sewer projects.
South Atlantic
Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia
KEY FINDINGS
Contractors see more bidding chances in 2008Equipment sales, rental activity viewed as strongScarcity of good workers seen as serious problem
Even though its Optimism Quotient fell 5 points in the 2008 Forecast to 79, the South Atlantic Region has achieved an average OQ of 100 for the past five years. Over the last decade this has been one of the most consistently positive regions in our survey.
Thirty-five percent of contractors expect to have more chances to bid in 2008, slightly above the national average of 31 percent, and almost half expect bidding activity to stay about the same. More than one-third of contractors think construction activity will increase (just one region is more optimistic in this regard) and 41 percent, compared to 34 percent nationally, think the outlook is for a better year ahead.
Seventy-seven percent of distributors said 2008 will be at least as good as 2007 overall. Two-thirds think nonresidential activity will at least hold steady, while only 16 percent think residential construction activity will increase. More than one-fourth of distributors and 29 percent of contractors expect to generate more net income in 2008, with the average contractor expecting about 38 percent income growth. Distributors are more conservative, with an average growth estimate of around 14 percent.
About 30 percent of South Atlantic contractors plan to buy new equipment in 2008, with an average budget of approximately $82,000. One in five expects to make used-equipment purchases, spending about $88,000, on average, for their acquisitions. Eighty percent of distributors anticipate selling at least as much new equipment in 2008, 82 percent expect used equipment sales to grow or stay the same, and 54 percent (compared to 47 percent nationally) said their equipment-rental income will increase.
Like their colleagues in many other regions of the country, South Atlantic contractors are most concerned about high insurance costs and labor shortages. More than half said cash flow and cost of capital are serious industry issues. Twenty-three percent of distributors said worker scarcity is their primary problem, followed by lack of work (17 percent) and cash flow (13 percent).
Distributors are most enthused about opportunities in general construction, commercial construction and mining. Contractors see their best opportunities in commercial construction, residential construction, government jobs, and water and sewer work.
East South Central
Alabama, Kentucky, Mississippi, Tennessee
KEY FINDINGS
Companies positive about prospects for 2008Contractors mount aggressive equipment plansCommercial opportunities rank high for contractors
Though its Optimism Quotient slipped three points in the 2008 Forecast, the East South Central remains one of the most optimistic regions of the country, with a 2008 OQ above 90 and a five-year average OQ of 106.
Forty-four percent of contractors see more bidding opportunities ahead and 30 percent think construction activity will increase in 2008; both numbers are above the national averages of 31 percent and 28 percent, respectively.
Contractors are significantly more positive about the 2008 outlook than most of their peers; 45 percent see a better year ahead, compared to a 34 percent national average.
Forty percent of distributors think their overall business outlook is better for 2008 than for 2007, one of the most positive assessments in this year's Forecast. Distributors are also relatively positive about residential and nonresidential construction activity; 41 percent and 30 percent, respectively, expect to see more activity in 2008. These are survey-high findings in both cases.
Contractors in the East South Central Region have both the newest equipment and the most aggressive equipment-acquisition plans. With an average age of 5.8 years, equipment in this region is a full two years newer than the national average. A survey high 42 percent of contractors plan new equipment purchases with an average budget of almost $185,000; that's also a survey high, compared to a national average of about $98,000.
Not surprisingly, about 85 percent of distributors think they will sell at least as much new and used equipment as they did in 2007. Distributors who think their new equipment sales will increase said they will rise about 17 percent, slightly above the 16 percent national average. Ninety-five percent of East South Central distributors who rent equipment expect their rental income to grow or stay the same in the coming year and 40 percent plan to add equipment to their rental fleet.
While 26 percent of contractors say finding good workers is the industry's most serious problem, 12 percent are more concerned about lack of work. More than one-fourth of distributors said the shortage of qualified workers is the biggest problem for construction firms in 2008.
Thirty percent of distributors think their best opportunities for 2008 lie in general construction, 18 percent see mining as a top priority and 16 percent will focus on commercial construction in the coming year. Most contractors see nonresidential or commercial projects as their ripest opportunity, followed by residential construction, road and building work, and diversification.
West South Central
Arkansas, Louisiana, Oklahoma, Texas
KEY FINDINGS
West South Central most optimistic region about 2008Contractors more likely to rent equipmentDistributors focus on oil and gas opportunities
Despite an Optimism Quotient that dropped 25 points in this year's survey, the West South Central is the most optimistic region in our Construction Industry Forecast for the third straight year. The five-year average for this region is a very optimistic 116.
Contractors and distributors are well aligned in their thinking, with OQ scores of 97 and 96, respectively. About 50 percent of each group thinks 2008 will be a better year overall than 2007 and, in both cases, those are the highest ratings of any region in our 2008 Forecast.
Thirty-five percent of contractors, also a survey high, anticipate more construction activity in 2008 and 45 percent see more bidding opportunities on the horizon. More than one-fourth of distributors see more action coming in the residential construction sector and one-third said nonresidential construction will be more robust in 2008.
More than 40 percent of contractors think their net income will grow in 2008, by an average of more than 35 percent. Forty-five percent of distributors expect to generate more net income; they project more modest growth of about 15 percent, on average.
Forty-four percent of distributors said they expect their new equipment sales will increase in 2008 and 45 percent think they will stay about the same; 94 percent expect to sell at least as much used equipment as they did in 2007.
Thirty-six percent of contractors expect to make new equipment purchases and 18 percent plan to buy used equipment. West South Central contractors use leased or rented equipment to meet 23 percent of their needs, the highest estimate of any region. Thirty percent said they will rent more equipment in the coming year, also a survey high. Forty-one percent of distributors plan to acquire equipment for their rental fleets. The shortage of qualified workers is most severe in the West South Central, with three-fourths of distributors and 83 percent of contractors listing the shortage as a serious industry problem.
Contractors view government projects, road and bridge work, residential construction, water and sewer projects, and oil and gas production among their top business opportunities for 2008. Almost 30 percent of distributors expect their richest opportunities to come from oil and gas projects.
Mountain
Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming
KEY FINDINGS
Distributors more positive about coming yearContractors expect to grow income in 2008Mining, home building top lists of opportunities
With a five-year average Optimism Quotient above 100, Mountain Region construction leaders remain relatively positive about the future, despite a one-year OQ decline of 14 points. Distributors scored an OQ of 94 this year, making them significantly more positive about the year ahead than contractors, who had an OQ score of 73.
More distributors here than nationally see increases ahead for residential construction activity (22 percent vs. 18 percent) and non-residential building (33 percent vs. 29 percent). Almost three-fourths of contractors think there will be at least as much activity in 2008 as there was in 2007 and 29 percent see more bidding opportunities. Eighty-eight percent of distributors and 71 percent of contractors expect 2008 to be at least as good overall as 2007.
Twenty-two percent of contractors said they believe their company's net income will increase in 2008; they predict an average increase of nearly 37 percent, compared to a national average of 34 percent. About one-third of Mountain Region distributors expect to generate more income, projecting an average increase of 19 percent, same as the national average.
More than 35 percent of contractors plan to buy new equipment in 2008 and 23 percent expect to purchase preowned equipment, higher than the national average in both instances. But their equipment-acquisition budgets are the smallest of any region in this year's survey at an average of about $68,000 for new equipment and $45,500 for used purchases.
Pacific
Alaska, California, Hawaii, Oregon, Washington
KEY FINDINGS
Distributors more positive than contractorsContractors expect income growth in 2008Industry feels shortage of good workers
The Pacific Region Optimism Quotient dropped 18 points in 2008 to 70. On the surface, this makes the Pacific Region the second most pessimistic about local construction activity for the coming year. But beneath the surface there is a definite paradox in the Pacific states in this year's Forecast.
Only half of distributors (compared to 62 percent nationally) said residential construction activity will increase or stay the same. In contrast, 31 percent said non-residential activity will increase, which is just above the national average of 29 percent. In spite of their less-than-optimistic predictions about local construction activity, about half of equipment distributors here (significantly more than the national average of 36 percent) said that their overall business outlook is better for 2008.
Thirty-nine percent of contractors (compared to 34 percent nationally) see 2008 as a better year overall, 74 percent think activity will at least hold steady (equal to the national average), and 33 percent (compared to 31 percent) foresee more bidding opportunities. Most contractors expect to generate about the same amount of net income in 2008 as they did in 2007. Those expecting income to rise, however, have the survey's most bullish growth estimate at 61 percent. Distributors are also very optimistic about their bottom lines: a survey high 47 percent said net income will increase; their growth estimate of 25 percent is a survey high for distributors.
Pacific Region contractors have relatively modest equipment-acquisition plans for 2008. Twenty-six percent plan new equipment purchases, compared to a national average of 30 percent; 16 percent expect to buy used equipment, compared to 20 percent nationally. Meanwhile, more distributors here than in any other region (49 percent vs. 33 percent on average) expect new equipment sales to increase in 2008 and 40 percent expect them to say the same.
A survey high 80 percent of contractors said a lack of qualified workers is a serious problem for their industry in 2008. Finding and keeping good workers is also distributors' most frequently mentioned challenge for the coming year.
Distributors think general construction, commercial projects, and road and bridge work offer some of the best prospects for the coming year. Residential construction is still viewed as the best opportunity for 2008 by many contractors, but a significant number are banking on government projects, water and sewer projects, and commercial work.
author: By A. D. "Butch" Horn




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