Bank Reports no Recession Next Year for Construction Equipment
The outlook for next year is anything but gloomy for the construction equipment industry. This comes from a popular Equipment Finance Optimism Quotient for 2019.
A major banking Senior Economist made a confident statement that the next 2 years showed promising forecasts for commercial construction and the construction equipment industry. He based his optimism on the Optimism Quotient of 122 in 2019. While there was a peak of 133 in 2018, anything over 100 points to strong growth.
Manufacturing Orders Still Pouring In
Surveys from construction contractors indicate that the purchase of used equipment is a big factor in purchases for major contracts. Partly due to a backlog of new equipment manufacturing orders and costs, used equipment is at a premium price. An overview of equipment rental companies and distributors of construction equipment were also surveyed as a larger group of new equipment purchases.
Most heavy construction equipment categorized belonged to site preparation, highway building, utility placement, concrete and asphalt work and nonresidential building. Major players, including those with 50 or more employees and averaging over $25 million in yearly revenue were selected for surveys.
Where Optimism Comes From
The Equipment Finance Optimism Quotient has been a basis for measurement in forecasts and has been watched closely since 1998. However, there are 4 marked economic indices that are used to track upcoming sales in construction industry equipment. These include the Private Construction Index, the Architectural Billings Index, the Public Nonresidential Construction Index and the Industrial Production Index.
The trend of contractors purchasing new equipment is based on the uptick in the strong backlog of work available and the flexibility of pricing as opposed to rental equipment. With used equipment bringing a large audience, new equipment seems a rational alternative for future years.
Industry Growth vs. Recession
Industry growth is leveling out compared to the past 2 years, but the net profit is remaining strong. Working smarter and adjusting to inflation has brought growth down by a minimum. Many businesses have learned from the past recession what to look for and what steps to take in order to stay afloat. Bending on the side of caution with employees, maintenance and project costs create better management in terms of purchasing new construction equipment.
According to one survey respondent from a construction company, having the necessary equipment available is the main concern in bidding on new projects. Although 2019 shows a slowing in commercial construction, interest rates and infrastructure maintenance continues to hold steady. Other healthy indicators include the low unemployment rate, the need for more housing and the fact that more people are saving money.
Is the Economy at its Peak?
The market scare of 1987 and 2008 seems to have placed lenders and corporations on the cusp of caution rather than one of risk. There seems to be little worry from those purchasing construction equipment with all of the indicators available to them. Their largest concern was with the labor shortage and the Feds decision to raise interest rates. Even though new construction equipment is higher with a floating rate than what it was in 2016, assets seem to be carrying the load quite nicely.
The manufacture of construction equipment is a good sign that infrastructural growth is still on the rise. While seeing a plateau in a few corners of the building, all signs point to a robust future in commercial building over the next few years. The trade war in China has had little effect on the current situation in the United States when it comes to construction equipment. Oil prices are lower and supply and demand are holding steady.