Wells Fargo Construction: Is the Industry Turning a Corner?

Times are tough, but they’ve been tougher. According to the latest Wells Fargo Construction Quarterly newsletter, the construction industry might be turning a corner.

“In January, we released the results of our annual Construction Industry Survey and its Optimism Quotient [OQ],” John Crum, National Sales Manager for Wells Fargo Construction wrong in his opening letter. “After coming off a record low OQ of 38 in 2009, the measurement bounced back to a 66 for 2010. While sentiment may not be considered overly optimistic, it is definitely up from last year. More executives than in 2009 said they plan on acquiring new and/or used equipment.”

Equipment values are also starting to stabilize. As construction activity peaked in 2006, equipment manufacturers produced large quantities of machines to meet demand.

Domestic activity then trailed off, but international demand propped up prices. When global construction activity dried up, demand for new and used machines fell and equipment values slid along with it. Recently, Wells Fargo Construction has seen a stabilization of equipment values, according to Crum. A turnaround might be afoot but numbers of new pieces sold will remain at low levels through this year.

And while construction spending is holding, it’s doing so by a string. Wells Fargo Construction research shows that overall residential spending appears to have bottomed out and should grow, albeit at a moderate pace. However, non-residential construction activity is down almost 50 percent from 2008 through 2009 and Wells Fargo Construction expects another slight drop in 2010. Highway spending is likely to remain flat in 2010, but may be helped by the recently passed bill that extends funding for the Nation’s surface transportation system until the end of the year, the newsletter reports.