Survey Shows Optimism in Construction Industry

TEMPE, ARIZ. — The 29th annual CIT Construction Industry Forecast indicates that U.S. construction industry leaders are predicting a strong year ahead. Of nine U.S. regions surveyed, six show an increase in optimism.

“In last year’s CIT Construction Industry Forecast, U.S. construction industry executives told us that they could see the light at the end of the tunnel after several years of economic uncertainty,” said Roy Keller, president of CIT Equipment Finance, which provides financial services such as lending and leasing to the construction industry. “This year, it looks like the industry has made its way out of the tunnel altogether and the forecast is brighter than at any time in the last decade.”

The forecast surveyed U.S. construction executives on their perceptions of the state of the industry and trends for the coming year. More than 900 contractors and equipment distributors were surveyed via telephone interviews across the country.

With a booming market for new housing and softness in commercial construction activity in many parts of the country, contractors have focused most of their attention on residential construction in recent years. In last year’s survey, 71% of builders said that home and apartment construction was their primary business.

That number declined five points to 66% this year and more builders (21% vs. 15%) say that commercial construction is their main focus. Residential construction is viewed as the most promising business opportunity for 2005 by 62% of builders, down slightly from 64% who felt that way a year ago.

As an indicator that the climate is improving, 30% of distributors expect the number of contractors in their area to increase in 2005 — twice as many as predicted an increase two years ago.

After back-to-back years of growing optimism, many U.S. construction contractors feel confident enough to increase their investment in new and used construction equipment in 2005. While the percentage of contractors planning to buy new equipment is about the same, they are planning to spend considerably more in 2005. On average, contractors who plan new-equipment purchases expect to invest $79,223 in 2005 — double what they planned to spend in 2004.

As they look ahead to busier project schedules in 2005, contractors expect to be slightly more active in leasing and renting construction equipment; 63% of contractors say they rent the kinds of equipment that they do not need to use all the time. Fewer contractors (23%) cite cost as a motivator for renting equipment than last year when 37% of respondents said they rented equipment because it was more cost-effective.

More than a third (35%) of contractors anticipate their net income to grow in 2005 (compared to 36% in 2004) and 56% expecting it to stay the same (vs. 53% last year). Also, 82% of contractors say that their company’s total financing costs will increase in 2005.

Relationships continue to be a major driver of business in the construction industry, with 85% of contractors saying that industry friends and colleagues are a valuable source of business information. Industry journals, daily newspapers and meetings and seminars are also highly regarded. Distributors are significantly more likely than contractors to turn to the Internet for information; 69% of distributors say the Internet is a valuable information source, compared to 51% of contractors.

The Internet has become an essential business tool for U.S. construction companies with 27% of contractors in this year’s survey having a company Website, a 50% increase over the 18% of contractors that said they had an Internet presence in last year’s forecast. In addition, 19% of contractors without a current Website plan to be online by the end of 2005. While there is already a high level of Internet use across the industry, more than half of contractors predict that their business use of the Web will grow in 2005.

Contractors also use the Internet to promote their companies, with 62% of contractors posting information about their projects on the company Website, an increase of 10 percentage points from last year’s survey; 58% post customer references.

More information can be obtained at the firm’s Website at www.cit.com.