CIT Equipment Finance, a unit of CIT Group Inc., says that
U.S. construction industry leaders are significantly more positive
about the industry’s prospects than at any time since 1999.
This finding is one of the results of the 28th annual CIT Construction
Industry Forecast, which was held in December 2003 in
Tempe, Ariz. The 2004 outlook indicates that U.S. construction
industry leaders are significantly more positive about the industry’s
prospects than at any time since 1999. Of nine U.S. regions
surveyed, eight showed double-digit improvements in optimism.
“This year’s forecast tells a much different story than last year’s,”
said Roy Keller, president of CIT Equipment Finance. “The
overall year-over-year growth in optimism was the most impressive
in the 28-year history of the CIT Construction Industry Forecast
and this bodes very well for the industry’s prospects. Our
Forecast has been a consistent and accurate predictor of what lies
ahead.”
Now in its 28th year, the CIT Construction Industry Forecast independently
surveys 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.
The Optimism Quotient is the Forecast’s primary indicator for
assessing and comparing the respondents’ level of confidence in
the health of the construction industry. The OQ is a weighted
and averaged number that expresses construction executives’ perceptions
of the industry’s prospects for the coming year. Generally,
a number of 100 or higher indicates strong optimism in the
industry’s one-year outlook while a number below 100 indicates
a more cautious projection.
2004 OQ: “Strong Optimism”
The 2004 Construction Industry Forecast: overall optimism quotient
jumped 14 points — from last year’s 89 to 103 — the highest
level since 2000, when the forecast accurately predicted a softening
in the U.S. construction industry. The OQ for contractors
and distributors rose 13 and 16 points, respectively (see chart
below).
Regional Highlights
The United States was divided into nine regions for the survey: 2004 (90-92).
West South Central — Arkansas, Louisiana, Oklahoma,
Texas.
East South Central — Alabama, Kentucky, Mississippi, Tennessee.
Mountain — Arizona, Colorado, Idaho, Montana, Nevada,
New Mexico, Utah, Wyoming.
South Atlantic — Delaware, District of Columbia, Florida,
Georgia, Maryland, North Carolina, South Carolina, Virginia,
West Virginia.
Pacific — Alaska, California, Hawaii, Oregon, Washington.
New England — Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, Vermont.
Middle Atlantic — New Jersey, New York, Pennsylvania.
West North Central — Iowa, Kansas, Minnesota, Missouri,
Nebraska, North Dakota, South Dakota.
East North Central — Illinois, Indiana, Michigan, Ohio,
Wisconsin.
Following are the key 2004 regional highlights:
The OQ in six of nine U.S. regions rose 14 points or more.
The West South Central is the most positive region, posting
the highest OQ (118) of any region in the past five years.
This was the second consecutive year this region had the
highest OQ.
The Mountain, South Atlantic, West South Central and
Pacific regions experienced the highest year-over year OQ
increases (18-20).
Eight of the nine regions showed double-digit OQ increases
for 2004.
The East North Central region is the only region to experience
a decline in OQ (-1).
No region had an OQ below 90 for the first time since 2000.
The East North Central, West North Central, New England
and Middle Atlantic regions had the lowest OQ ratings in 2004 (90-92).
A statistical summary of each region can be found in the chart below.
U.S. Construction Trends
Finance. Industry-wide, executives are slightly more positive about their financial
prospects than they were in 2003. Eighty-nine percent of contractors and distributors
surveyed expect to generate at least as much net income in 2004 as compared to 85
percent in 2003. Concurrently, 68 percent of contractors and 66 percent of distributors
anticipate higher financing costs for 2004 — up significantly from 2003 (when
51 percent and 56 percent, respectively, thought they would rise). Cost of capital was
cited as one of the industry’s most significant issues by 42 percent of contractors and
44 percent of distributors.
For the second consecutive year, the rising cost of insurance was the top issue on the
minds of construction industry executives. Eighty-nine percent of contractors and 87
percent of distributors mentioned insurance costs as one of the most pressing issues facing
the industry in 2004 (compared to 85 percent and 87 percent, respectively, last year).
Also, 49 percent of contractors and 64 percent of distributors cite profit margins as a
major concern for 2004. Cash flow was cited as a major problem
by 42 percent of contractors and 56 percent of distributors.
Equipment. Contractors continue to take a conservative
approach to investing in new or used equipment. Roughly 44
percent of contractors surveyed said they will purchase equipment
in 2004 versus 49 percent in 2003. Just half of these contractors
indicated they will purchase new equipment. Twenty-three
percent plan to purchase only used equipment (21 percent
in 2003). Distributors, on the other hand, have a more
optimistic view of the 2004 new equipment market. Fifty-one
percent predict their new-equipment sales figures will be higher
next year (versus 43 percent in the 2003 forecast). Distributors
and contractors share similar views in the used-equipment
market. Neither group thinks used-equipment sales will be
much different in 2004 than they were in 2003. Only 38 percent
of distributors predict that used-equipment sales will
increase in 2004.
Equipment Rental. As equipment fleets grow older, more contractors
continue to find it necessary to use rental equipment
to back up the equipment they own. Twenty percent of non-builders
said covering for equipment that breaks down is one of their top reasons for renting — twice as many cited break- downs as a reason last year.
Competition with large equipment-rental companies is becoming
the norm for distributors. Seventy-six percent say they compete
directly with rental companies, up from 71 percent last
year. This year, 86 percent of distributors with light-equipment
rental business said they had competition from rental outlets —
an increase of 21 percent in just one year.
Business Strategies. With fewer commercial construction opportunities
available, builders have focused more on the vibrant home-building
market. Seventy-one percent of builders reported that
residential and apartment construction was their primary source
of business, outdistancing commercial construction that ranked
second with just 15 percent. Nonbuilders and distributors are
much more diversified. Sixteen percent of non-builders (same as
2003) said that excavation or clearing was their top business area.
Twenty-five percent of contractors listed earthmoving and reclamation
as their top business source, down slightly from last year.
Technology. The Internet continues to grow in importance as
a business tool for the U.S. construction industry. Fifty-two percent of contractors and 63 percent of distributors consider the
Internet to be a valuable source of industry information. In
addition, for the fourth consecutive year, more than 75 percent
of distributors say their business use of the Internet will grow
in the coming year. Seventy-seven percent of distributors and
54 percent of contractors say they plan to use the Web more in
the coming year. On average, distributors expect to make 11.4
percent of their equipment sales and 9.5 percent of their equipment
rentals online in 2004, up significantly from 2003.
Issues and Opportunities. The number of builders naming residential
construction as the industry’s single best opportunity
has increased consistently in each of the past six years. Sixty-four
percent of builders said residential construction was their
top opportunity (62 percent last year and 32 percent in 2002)
versus only 16 percent of builders who said non-residential construction
was their top opportunity.
About the Author
CIT Equipment Finance — U.S. is a leading lessor and lender
in the construction, printing, machine tools, plastics, health-care
and manufacturing markets.
CIT Group Inc. (NYSE: CIT), a leading commercial and consumer
finance company, provides clients with financing and
leasing products and advisory services. Founded in 1908, CIT
has nearly $50 billion in assets under management and possesses
the financial resources, industry expertise and product
knowledge to serve the needs of clients across 30 industries.
CIT, with its principal offices in New York City and Livingston,
N.J., has approximately 6,000 employees in locations through-out
North America, Europe, Latin and South America and the
Pacific Rim.
For More Information
Learn more about CIT Equipment Finance and CIT Group by
visiting either company’s Web site at www.cit.com or www.efinanceit.com. For a copy of the CIT Construction Industry Forecast,
contact Sarah Malinowski at (201) 460-2845.
