2022 Construction Industry Forecast - Wells Fargo
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2022 Construction Industry Forecast
Page 2 | wellsfargo.com/constructionforecast
A year of cautious recovery
With an unceasing health pandemic, and supply chain COVID-19 continues to affect our economy and our
constraints in tow, 2021 brought us continued industry society, and the aftermath of the initial impact still
stress, with a glimpse of optimism mixed in. During complex looms. Executives told us that the greatest risks to the
times such as these, it is vital to survey our industry peers to construction industry are unavailability of skilled workers
understand their sentiment as they reflect back, and begin and an increase in supply chain disruptions. In spite of these,
to look forward. and other imminent risks and concerns, executives have
noted that key opportunities lie in an improved overall
This marked the 46th year of our annual Wells Fargo
economy, improved qualified labor availability, the recent
Construction Industry Forecast, and we are pleased to
Congressional passage of the Infrastructure Bill and low
report that industry executives from 46 states responded
interest rates. Overall, most executives remain positive
to our survey. The primary goal of the survey is to
about profitability in 2022 with significantly more (52% vs.
determine the 2022 U.S. National Optimism Quotient (OQ),
40% last year) expecting profitability will increase and only
which is the survey’s primary benchmark for measuring the
28% predicting net profits will remain the same.
degree of optimism in the non-residential construction
business for the coming year. In addition to determining the As we shift our focus to what may come next, please
OQ, the survey also posed questions about equipment sales reference the full report to weigh your future business
and purchase expectations, trends in the rental market, decisions against what your industry peers have to say.
and explored major cost and risk concerns that industry As always, please reach out with any questions you have
executives are thinking about as they look ahead to 2022. about the survey. We are glad to share our perspective and
This year’s OQ comes in at 112 indicating optimism, but still interpretation of the results at your convenience.
peppered with caution.
Jim Heron
National Sales Manager
Construction Group
Wells Fargo Equipment Finance
612-667-3477
james.t.heron@wellsfargo.com
3
Page 4 | wellsfargo.com/constructionforecast
Table of contents
Survey method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 6
The 2022 Optimism Quotient is 112 . . . . . . . . . . . . . . . . . . . page 10
Survey results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 14
Construction industry overview . . . . . . . . . . . . . . . . . . . . . . . . page 22
Rental review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 26
Industry Risks, Cost Concerns, and Opportunities . . . . . . page 32
About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 38
5
Survey method Page 6 | wellsfargo.com/constructionforecast
Overview
The survey results presented in this 2022 Construction Distributors are dealers of construction equipment.
Industry Forecast represent the 46th year in which These companies most often sell heavy equipment, light
Wells Fargo Equipment Finance and its predecessors equipment, or general construction equipment, and provide
have surveyed construction industry executives to gather a range of products and services to the construction
insight into current business conditions and trends, and to industry. It is very common for distributors to also have
measure their sentiment toward construction activity in rental as part of their business strategy.
the coming year. This year, survey responses came from 313
Manufacturers create or build the equipment that
construction industry executives in 46 states. Note: The
contractors use.
margin of error for this survey varies among respondent
groups, but does not exceed 15% (95% confidence level).
Survey dates
Respondent classification September 13 – October 4, 2021
Contractors are companies that execute construction
Composition of survey respondents
projects. Producers of aggregate materials and other
companies that rely on heavy construction equipment Over half of respondents represent companies with
also fall into this category. These companies often buy, more than 51 employees (59%) and an annual revenue of
lease, or rent large construction equipment to complete over $25 million (53%). Non-residential building and site
such projects. preparation/excavation are the most common industries
among respondents. Respondents are high level executives
Equipment rental companies acquire equipment to rent including primarily owners (34%) or C level executives (21%).
out to contractors. These companies are grouped with
distributors for purposes of analysis.
7
Which of the following categories best describes your Which of the following categories best describes your
company’s total number of employees? company’s annual revenue?
More than 10 or less
1,000 $100 million
7% 8% Less than
or more 23% 18%
$5 million
201 to 20%
1,000
33% 11 to 50
28%
$25 million $5 million to
31%
51 to 200 to less than less than
32%
$100 million $25 million
59% have 51+ 41% have 50 or
employees fewer employees Base: Total respondents — 313.
Base: Total respondents — 313.
59% have 51+ employees
41% have 50 or fewer employees
Graphic distribution of survey respondents
Companies surveyed varied in size and revenue; nearly 6 in 10 companies have more than 50 employees
and approximately one-half have $25 million or more in annual revenue.
This symbol indicates energy states
West — 25% Midwest — 22% South — 37% Northeast — 15%
AK, AZ, CA, CO, HI, ID, MT, IA, IL, IN, KS, MI, MN, AL, AR, DE, FL, GA, KY, CT, MA, ME, NH, NJ, NY,
NM, NV, OR, UT, WA, WY MO, ND, NE, OH, SD, WI LA, MD, MS, NC, OK, SC, PA, RI, VT
TN, TX, VA, WV
Base: Total respondents — 313.
Page 8 | wellsfargo.com/constructionforecast
In which of the following industries do you do the most work?
Category
Non-residential building 20%
Site preparation/excavation 17%
Equipment dealers/rentals 12%
Concrete and asphalt 11%
Residential building 10%
Heavy Highway 9%
Utility contracting 8%
Aggregate production 4%
Oil & Gas 4%
Renewable energy 1%
Other 6%
What best describes your company’s primary function in the construction industry?
Aggregate producer
4%
23% Construction equipment distributor with rental
Construction equipment rental company
Industry service supplier
1% 5%
(consultant, association, publication, etc.)
58% 1%
Construction equipment manufacturer
8%
Other
Construction contractor
Base: Total respondents — 313.
Percentages may not add up to 100% due to rounding. For questions regarding this Wells Fargo Equipment Finance survey, please contact us at WFCCInquiries@wellsfargo.com.
9
The 2022 Optimism Quotient is 112 2022 — A year of cautious recovery The Optimism Quotient (OQ) — this survey’s primary benchmark for measuring contractor and equipment distributor sentiment on local non-residential construction activity — is 112 for 2022. Rebounding from the sentiments of the prior two years, most executives expect increased growth, though some do maintain their caution for the year ahead. While this year’s score is considered strong optimism for local non-residential construction, the strong expectations this year should be taken within the context of exceeding the tempered optimism of the last two years. An OQ score of 100 or more represents strong optimism for increased local construction activity relative to the perceived level of activity for the prior calendar year. A score of 75 to 99 represents more cautious or measured optimism. A score below 75 signals that fewer executives say local construction activity will increase than say it will decrease, a more pessimistic point of view. With similar OQ scores, distributors and contractors predict positive growth in 2022 in spite of the continuing effects of the global pandemic, uncertainty related to supply chain disruptions and concerns over inflation. Page 10 | wellsfargo.com/constructionforecast
U.S. National Optimism Quotient
133
130
124 123 122
114 112
105 104 109 106 108
96 102 103 102 99
93 96
88 89 86 Strong
80 78 optimism
66 Cautious
optimism
42
Low
optimism
’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22
Strong optimism emerges for local non-residential construction after two years of tempered forecasts. The Optimism
Quotient (OQ) presented by Wells Fargo Equipment Finance is this survey’s primary metric for assessing respondents’
sentiment about local non-residential construction activity. The measurement is directional in nature and gives an indication
of industry executives’ optimism about the coming year compared to the previous year.
U.S. National Optimism Quotient by region
145
131 131 129 130
120 120 123 122 119 116
116 112 117 115
108 107 105 105 108 108
96 97 101
86 81 Strong
74 70 optimism
Cautious
optimism
Low
optimism
’16 ’17 ’18 ’19 ’20 ’21 ’22 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’16 ’17 ’18 ’19 ’20 ’21 ’22
West Midwest South Northeast
Base: Total respondents — 313 for 2022 forecast.
Optimism rose across all regions with the Northeast recording a 45 point swing in optimism after seeing the largest
decline last year rising from 70 (low optimism) to 115 (strong optimism).
11Optimism is comparable among contractors and distributors
Contractors and distributors alike are optimistic in their outlook for non-residential construction in 2022. For the fourth
consecutive year, contractors and distributors have largely consistent expectations for the year ahead. Previously, distributors
had expressed a higher level of optimism than contractors.
Distributors and Contractors U.S. National Optimism Quotient
150
125
114
100 113
75
50
25
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Distributors Contractors
Base: Total contractors (n=197), Distributors (n=86) for 2022 forecast.
Editor’s note: Beginning with the 2014 survey, we have calculated the OQ for
distributors using the combined responses of those that identi ed themselves
as distributors or as equipment rental companies. In prior years, we did not
combine the two categories.
Page 12 | wellsfargo.com/constructionforecastHow does Optimism Quotient compare to other key economic indices?
Although there are outlier years, the overall data over time shows that the Optimism Quotient tracks closely with four key
economic indices. The indices that are significant to the construction industry outlook are the Architectural Billings Index, the
Private Construction Index, the Industrial Production Index, and the Public Non-residential Construction Index.
Optimism Quotient vs. Total Architectural Billing Index Optimism Quotient vs. Industrial Production Index
150 60 150 105
130 130 100
55
110 110 95
50
90 90 90
45
70 70 85
50 40 50 80
30 35 30 75
1998 2003 2008 2013 2018 Oct. 1998 2003 2008 2013 2018 Oct.
2021 YTD 2021 YTD
Optimism Quotient: Total AIA Billings: Optimism Quotient: Total Industrial Production
2022 @ 112 (Left Axis) (Right Axis) 2022 @ 112 (Left Axis) Index: (Right Axis)
Source: The American Institute of Architects (AIA) Source: Wells Fargo Securities, LLC.
Optimism Quotient vs. Public Non-residential Optimism Quotient vs. Private Construction Index,
Construction Index billions of dollars
150 .36M 150 1.3M
.34M 1.2M
130 130
.32M 1.0M
110 110
.30M 0.9M
90 .28M 90 0.8M
.26M 0.7M
70 70
.24M 0.6M
50 50
.22M 0.5M
30 .20M 30 0.4M
1998 2003 2008 2013 2018 Oct. 1998 2003 2008 2013 2018 Oct.
2021 YTD 2021 YTD
Optimism Quotient: Public Nonres. Constr. Optimism Quotient: Private Construction
2022 @ 112 (Left Axis) spending: (Right Axis) 2022 @ 112 (Left Axis) spending: (Right Axis)
Source: U.S. Census Bureau (BOC): Construction Put-In-Place (C30) Source: U.S. Census Bureau (BOC): Construction Put-In-Place (C30)
13Survey results Page 14 | wellsfargo.com/constructionforecast
Three things to know for the year ahead
Industry Optimism
1
While optimism has rebounded from 78 up to 112, the positive outlook for 2022
retains elements of caution due to key industry risks and ongoing uncertainty
due to the global pandemic. However, in spite of the risks, both contractors and
distributors have similar expectations of local, non-residential activity for 2022
with roughly half of executives expecting it to increase compared to 2021.
2 Top Risks, Financial Concerns and Opportunities
Executives told us that the greatest risks to the construction industry are the
availability of skilled workers and supply chain disruptions. Rising material costs
and inflation also factor highly when expanding to look at the top three concerns.
The ability to hire qualified workers is also the top cost concern among 53%
of contractors (followed by materials costs and employee wages and other
benefits). In spite of these looming risks and concerns, executives noted that
key opportunities lie in an improved overall economy, improved qualified labor
availability, the recent Congressional passage of the Infrastructure Bill, and low
interest rates.
3 Equipment Acquisition
Distributors are largely optimistic about sales of new equipment with 61%
stating they expect an increase in sales. Those who do not expect an increase
are split with 18% who predict sales of new equipment will remain the same and
21% who believe sales will decrease. Among contractors, the expectation of new
equipment purchases in 2022 is mixed; 43% feel it will remain the same, 38% feel
it will increase, 14% feel it will decrease. A stronger backlog of jobs, and long-term
confidence in local and national economy followed by lower equipment costs
are the main factors that would encourage contractors to purchase equipment.
Similarly, most contractors feel that their purchases of used equipment will
remain the same (50%), while 60% of distributors think their sales of used
construction will increase.
15What does non-residential construction look like in 2022
Non-residential construction
Contractors — What is your projection for local non-residential construction activity
this year compared to last year?
59%
57%
54%
51% 52% 51%
48% 48% 49%
44% 44% 44% 43%
41%
39%
36% 37% 37%
34%
28% 29%
Decrease
Remain
13%
the same
11% 12%
10%
8% 8% Increase
6%
4% 3%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Distributors — What is your projection for local non-residential construction
activity for this year compared to last year?
72% 71%
63%
60%
51% 50% 51% 49% 50%
46% 45% 43%
40% 40% 40%
33% 34%
29% Decrease
26%
23%
20% Remain
17%
the same
10% 10%
7%
4% 4% 5% 3% 4% Increase
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Note: The up/down arrows denote a significant difference compared to 2021 at the 95% confidence level.
Base: Total contractors — 197 for 2022 forecast, 112 in 2021, 166 in 2020, 262 in 2019, 150 in 2018, 194 in 2017, 248 in 2016, 238 in 2015.
Base: Distributors — 86 for 2022 forecast, 80 in 2021, 102 in 2020, 127 in 2019, 105 in 2018, 134 in 2017, 174 in 2016, 138 in 2015.
Contractors and distributors have similar expectations in 2022 for non-residential
construction activity with significantly more than last year, 51% and 50% respectively,
predicting activity will increase. Compared to last year, fewer believe non-residential
construction will decrease.
Page 16 | wellsfargo.com/constructionforecastIndustry growth
Two years from now, which of the following scenarios is most likely to occur?
7% 6% 11% 9% 6% 8% 7%
75% 62% 23% 84% 76% 51% 54% 60% 54% Significant expansion
expansion expansion expansion expansion expansion expansion expansion expansion Moderate expansion
56% 42% 48%
52% 47%
68% 65% Neither an expansion nor
61% a contraction
22% 22% 21%
Moderate contraction
23% 20%
Significant contraction
16% 15% 25% 21%
10% 15% 21%
14%
7% 2% 1% 6% 0% 9% 0% 2% 3% 5% 4%
2015 2016 2017 2018 2019 2020 2021 2022
Base: Total respondents — 313 for 2022 forecast, 226 in 2021, 305 in 2020, 441 in 2019, 312 in 2018, 407 in 2017, 474 in 2016, 413 in 2015.
Over half of executives predict there will be industry expansion two years from now. While this estimation is consistent with
last year, the recent passage of the Infrastructure Bill could have the ability to strengthen this optimism. Those anticipating
no change to the industry (21%) or some form of contraction (25%) in two years has remained largely unchanged.
But what about net profits?
Net profit
Compared to net profits for 2021, do you think your net profits in 2022 will:
8% 10% 4% 8% 10% Increase significantly
11% 12% 11%
60% 52% 58% 61% 60% 43% 41% (15% or more)
52%
increase increase increase increase increase 39% increase 33% increase increase Increase moderately
44% 48% 49% 49% 42% (5% – less than 15%)
49%
Remain the same
38% 34%
32% Decrease moderately
28% 28%
32% (5% – less than 15%)
29% 30%
18% Decrease significantly
11% 15% 16%
8% 14% (15% or more)
3% 1% 3% 7% 1% 8% 0% 4% 8% 4%
2015 2016 2017 2018 2019 2020 2021 2022
Note: The up/down arrows denote a significant difference compared to 2021 at the 95% confidence level.
Base: Total respondents — 313 for 2022 forecast, 226 in 2021, 305 in 2020, 441 in 2019, 312 in 2018, 407 in 2017, 474 in 2016, 413 in 2015
Most executives remain positive about profitability in 2022 with significantly more (52% vs. 41%% last year) expecting
profitability will increase and only 28% predicting net profits will remain the same. Down from last year, 4% believe that net
profits will decrease significantly in 2022 compared to 2021.
17Non-residential versus residential activity
Expectations for 2022 saw many significant shifts from the 2021 outlook. Half of executives expect non-residential
construction activity will increase (50% in 2022 up from 28% in 2021), and only 12% anticipate activity will decrease (down
from 24% in 2021). Last year, nearly half of executives predicted that non-residential construction activity would remain
the same; however, for 2022, significantly fewer believe it will remain the same (38% in 2022 compared to 48% in 2021).
Non-energy states saw a similar shift with significantly more predicting an increase (49% up from 24%) in activity while
significantly fewer expected activity to remain the same or decrease. More than half of those from energy states are also
expecting an increase in activity. Of the executives who expect non-residential activity to remain consistent with activity last
year, executives are mixed — approximately 50% believe it will happen in 2022 and the remaining half believe improvement
will happen in 2023 or beyond. Significantly more executives are predicting a longer period before improvement (second half
2023 or beyond, 29% up from 15%).
What is your projection for local non-residential construction activity in 2022 compared to 2021?
24%
43% 40% 45% 36% 49%
49% 47% 53% 52%
61% 58% 62% 64%
67% 63% Increase
51%
Remain
48% 34% 51%
43%
46% 27% 42% 41% the same
22% 31% 32% 42% 44%
36% 32%
21% 25% Decrease
14% 5% 12% 15%
11% 8% 1% 6% 11% 5% 4% 4% 12% 11%
2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022
n=97 n=79 n=99 n=73 n=76 n=52 n=47^ n=66 n=316 n=395 n=308 n=239 n=365 n=253 n=179 n=247
Energy states Non-energy states
The up/down arrows denote a significant difference compared to 2021 at the 95% confidence level. ^Caution. Small base size.
Energy States = ND, SD, OK, TX, OH, WY, PA; Non-Energy States = all others
Optimism for residential construction activity is consistent for those from Energy and Non-Energy
states compared to last year
Optimism for residential construction activity remains consistent with predictions from last year with 44% expecting an
increase and 43% expecting activity will remain the same. Optimism for residential construction activity is consistent for
those from Energy and Non-Energy states and regions compared to last year. Executives who believe activity will remain the
same have diverging opinions on residential construction activity with 27% expecting an increase in the first half of 2022 and
32% conservatively estimating an increase in residential activity in the second half of 2023 or beyond.
What is your projection for local residential construction activity in 2022 compared to 2021?
30% 35% 38% 28%
43% 40% 46% 46% 43%
45% 47% 51% 48% 47%
53% 56%
Increase
55%
43% 53%
61% 50%
36%
46% 45% Remain
45%
43% 48% 43%
41%
44% 45%
40%
the same
11% 14% 7% 5% 9% 15%
6%
15%
5% 9% 9% 3%
16% 17% 9% 13% Decrease
2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022
n=97 n=79 n=99 n=73 n=76 n=52 n=47^ n=66 n=316 n=395 n=308 n=239 n=365 n=253 n=179 n=247
Energy states Non-energy states
The up/down arrows denote a significant difference compared to 2021 at the 95% confidence level. ^Caution. Small base size.
Energy States = ND, SD, OK, TX, OH, WY, PA; Non-Energy States = all others
Page 18 | wellsfargo.com/constructionforecastSales heading into 2022
Distributors
Overall, distributors indicate positive predictions for 2022 sales. Distributors are optimistic with 61% who believe that sales
of new construction equipment will increase. Other distributors (18%) expect sales of new equipment will remain the same
while 21% fear that sales may decrease.
Do you think that your sales of new construction equipment in 2022 compared to 2021 will:
Decrease
Remain
21% 18% 61% the same
Increase
Total distributors and construction equipment manufacturers answering (excludes rental companies) — 71 for 2022 forecast.
Consistent with last year, over half of distributors (60%) are predicting strong sales for used construction equipment in 2022;
28% think sales of used equipment will remain the same in 2022.
Do you think that your sales of used construction equipment in 2022 compared to 2021 will:
78%
73% 73%
66%
61%
58% 57% 60%
54%
48% Decrease
46%
39% 37% 37% 35% Remain
28% the same
24% 25%
18% Increase
16%
9% 10% 10% 12%
5% 6% 7% 7%
1% 2%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Base: Total distributors answering — 85 for 2022 forecast, 83 in 2021, 101 in 2020, 124 in 2019, 103 in 2018, 134 in 2017, 167 in 2016, 132 in 2015.
19Contractors
Contractors are more conservative about purchases of new equipment in 2022 compared to distributors’ expectations
of sales. Contractors are divided with 38% who believe their new equipment purchases will increase this year, 43% who
expect purchases to remain flat and 14% planning to decrease their purchase of new equipment in 2022.
Do you think that your purchases of new construction equipment in 2022 compared to last year will:
Decrease
14% 43% 38% Remain
the same
Increase
Base: Total contractors — 197 for 2022 forecast.
When asked about used equipment purchases, half of contractors anticipate purchases will remain the same, while 23%
predict an increase, and 10% expect purchases to decrease in 2022. Fewer contractors believe their purchases of used
equipment will decrease.
Do you think that your purchases of used construction equipment in 2022 compared to last year will:
57%
52% 52% 50%
46% 48%
44% 45%
42% 43%
Decrease
30%
27%
30% Remain
26% 25% the same
22% 22% 23%
20% 21% 20%
19% 19%
16% 16% 17% Increase
13%
11% 10%
8%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Base: Total contractors: For 2022 Forecast (n=197); 2021 (n=112); 2020 (n=166); 2019 (n=262); 2018 (n=150); 2017 (n=194); 2016 (n=248); 2015 (n=238).
Page 20 | wellsfargo.com/constructionforecast“Finding skilled labor is the biggest
problem that keeps us from growing
our company. We turn work down
daily because we do not have
enough workforce.”
— Survey respondent
21Construction industry overview
The Construction Industry Will Be on a More Solid Foundation in 2022
The construction industry appears to be moving back into activity in the factory sector and spurred development of
balance. One of the major themes over the past year and new manufacturing projects. The public sector has been
a half has been the divergence in residential and non- another recent bright spot. State and local governments are
residential construction owed largely to the aftershocks now flush with cash from unexpectedly strong tax receipts
of the pandemic. Now, with vaccines and an expanding and federal aid, and much of this money appears to be
toolbox of therapeutics, the post-pandemic economic flowing into a myriad of public works projects.
picture is becoming clearer and the gap appears to be
Of course, the non-residential sectors which have suffered
narrowing. After surging higher for much of the past two
the most adverse pandemic-related impacts are still
years, residential spending has moderated. Despite strong
struggling to get back on track, notably for new office, hotel
demand from buyers and investors and persistent low
and education projects. That noted, there are encouraging
for-sale inventory, housing starts have remained relatively
signs that the worst days are likely in the past. Schools
constrained. The apparent contradiction is being driven by
appear to have successfully welcomed back students for
the persistent shortages of materials and labor as well as
in-person instruction without significant disruption from
substantially higher input costs, which is making it tougher
COVID outbreaks in most of the country. The return to
for builders to finish projects started during the pandemic.
the office is gaining traction, which is a step in the right
During October, there were 726,000 single-family
direction for the beleaguered office market. We expect
homes under construction, the most in over a decade.
the return to gain momentum in 2022, despite the threat
Furthermore, the number of multifamily buildings with
from the Omicron variant. There is even some cause for
five or more units currently under construction stands at
cautious optimism for the hard-hit lodging sector. Despite
712,000, more than at any time dating back to 1974.
new COVID outbreaks, domestic and leisure travel ramped
On the other side of the ledger, non-residential activity up considerably in 2021 and the long-awaited return of
is starting to gather momentum. The knock-on effects business and international travelers should further revive
of the public health crisis continue to be a boon for new the hotel market in 2022.
warehouse and industrial development, with the shift to
While conditions are improving, the entire construction
e-commerce becoming more fully entrenched following
industry remains constrained by pervasive supply-side
the lockdown periods at the start of the pandemic. Retail
bottlenecks. The many twists and turns of the pandemic
construction has also picked up, as consumers feel more
over the past two years has left global supply chains
comfortable heading back into stores and have more time
tied up in knots, making a long list of building materials
to do so with more flexible work schedules. In addition to
difficult to come by. Shortages of key inputs have pulled
diminishing COVID concerns, consumers have accumulated
prices sharply higher for a wide array of items ranging
a stockpile of savings. Along similar lines, businesses
from steel and copper to appliances and pickup trucks.
continue to work to find ways to shorten and fortify supply
This past year’s meteoric rise in lumber prices provided
chains amid surging consumer demand, which has bolstered
the first clue that building materials would not be exempt
Page 22 | wellsfargo.com/constructionforecastfrom the inflationary pressures building up throughout
the economy. After peaking in May, lumber prices have
come down significantly but are now once again trending
higher. Transportation logjams and wildfires in the Pacific
Northwest and Canada have curtailed new supply, all while
home builder demand and demand from remodelers
remains strong. The fluctuations in framing lumber prices
comes as prices for other key materials continue to soar.
Steel prices have skyrocketed, as global steel production
continues to be curtailed by pandemic related factory
closures. Higher oil prices and widespread transportation
shortages have significantly boosted freight costs as well.
The building material pricing and availability environment
stands to be somewhat friendlier in 2022. Supply
constraints appear to be easing slightly as the winter
brings a seasonally slow period for construction projects
in the Northeast and Midwest, which could potentially
free up resources for the South and West. As the holiday
season winds down and the calendar moves into 2022,
logistics networks presumably will be under far less stress
from the onslaught of imports arising from the upshift in
holiday spending. Less congested transportation channels
should foster the movement of building materials and
other freight around the country. Furthermore, the
growing armament of COVID-19 treatments and vaccines
should help reduce unplanned factory closures and port
disruptions, which will allow production to catch up
with demand.
Unfortunately, there appears to be no relief in sight for
the increasingly dire shortage of skilled workers. The
number of construction job openings jumped to 410,000
in October 2021, marking the highest level on record, which
dates back to 2000. Shortfalls of labor are widespread
across the trades, but appear most acute for skilled
positions that require technical knowledge, extensive
training, or certifications. Difficulties finding qualified
23workers have thrown meticulously choreographed project multifamily permits rising in recent months.
schedules into disarray, leading to delays and uncertain The elevated level of multifamily permitting recently
completion timelines. Construction firms are now quickly suggests developers are encouraged by the broad-based
raising compensation to attract and retain workers. The resurgence in demand for apartments in nearly every major
Employment Cost Index (ECI) for construction workers, market in the country. A large proportion of apartment
which measures total compensation, shot up 3.6% year- development is in mid-rise and high-rise projects. Keeping
over-year in the third quarter of 2021, the sharpest rise this in mind, we expect residential spending to increase
since 2008. 6.5% in 2022, a slowdown compared to the feverish pace
seen in 2021, yet still a fairly strong rate of growth.
While unlikely to meaningfully abate, worker shortages
should improve in 2022. The absence of fiscal support We expect non-residential construction to further get back
and rising wages across the construction industry will on track next year. The rise of remote work and shift to
help convince sidelined workers to return. Less restrictive hybrid work models will continue to weigh heavily on new
immigration controls should also help augment the supply office construction. As the RTO makes further progress
of labor. Even before the pandemic ignited a surge in early in 2022, however, new office construction should begin
retirements, the pace of retirements was far exceeding the to slowly advance. A massive overhang of sublet space
number of new entrants into the construction industry. in the large gateway markets such as New York City and
Given that construction work has mostly fallen out of San Francisco means most new office construction will be
favor with younger generations thanks to the rise in concentrated in Denver, Austin, Charlotte, Miami and other
less physically intensive service-based occupations, the Southeastern and Mountain West markets with robust
construction industry as a whole will likely continue to population and employment growth. Spending on retail
endure the challenge of labor shortages over the long term. projects is also poised to strengthen, as retailers follow
One silver lining of labor shortages and the pandemic- residential development spurred by the population shift to
induced need to social distance is that the construction the suburbs and secondary metro areas throughout the
industry now appears to be adopting new technologies at Sun Belt.
a much faster pace. The use of drones, virtual inspections,
Warehouse construction will also continue to expand, as the
augmented reality apps and other new tech stand to
rise of e-commerce and congested supply chains continues
significantly boost productivity in coming years, which can
to drive demand for warehouses, distribution centers and
provide some offset to supply chain and labor challenges.
logistics facilities. Manufacturing is likely to be another
Despite these headwinds, builders and developers appear bright spot. In addition to global manufacturing capacity
to be pressing ahead. A structural shortfall of existing being partially re-shored as firms seek more resilient supply
single family homes, still-strong buyer demand and low chains, higher commodity prices will likely allow some LNG
mortgages provide the foundation for a strong pace and petrochemical manufacturing projects to get back
of home building next year. Even with some recent underway, notably in the Western Gulf states.
moderation in housing starts, the NAHB Housing Market
Spending on healthcare buildings is likely to improve,
Index remains at a lofty level, meaning home builders
but only modestly so. Healthcare providers continue to
remain overwhelmingly optimistic. Overall permitting
embrace technologies such as telehealth and virtual visits.
activity has strengthened, with both single-family and
Page 24 | wellsfargo.com/constructionforecastThese channels not only minimize in-person contact but
are also more cost-effective and will ultimately reduce the Mark Vitner
amount of space needed to provide care. Education project Managing Director and
spending is set to take a similar trajectory. Substantial Senior Economist
renovation and remodel spending to upgrade buildings Wells Fargo Securities, LLC
with the latest air filtration systems and other safety
The above commentary is based on the 2021 Construction Outlook published by the
modifications will provide a boost to activity. Spending
Wells Fargo Economics Team on December 10, 2021. For additional information, please
on higher educational buildings, however, is likely to be a contact economics@wellsfargo.com.
major drag on overall educational construction moving This report is produced by the Economics Group of Wells Fargo Securities, LLC, a U.S.
broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial
forward. Virtual and distance learning are becoming more Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo
commonplace. Shrinking enrollments due to a smaller Securities, LLC, distributes this report directly and through affiliates including, but not
limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Clearing Services,
college age cohort and better job prospects from tighter
LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Europe S.A.,
labor markets are also a significant headwind. Wells Fargo Securities Canada, Ltd., Wells Fargo Securities Asia Limited and Wells Fargo
Securities (Japan) Co. Limited. Wells Fargo Securities, LLC is registered with the Commodity
According to Dodge Data & Analytics, total non-residential Futures Trading Commission as a futures commission merchant and is a member in good
standing of the National Futures Association. Wells Fargo Bank, N.A. is registered with the
building starts have begun to climb higher, with starts up Commodity Futures Trading Commission as a swap dealer and is a member in good standing
11% on a year-to-date basis in October. What’s more, the of the National Futures Association. Wells Fargo Securities, LLC and Wells Fargo Bank, N.A.
forward-looking Architecture Billings Index has been solidly are generally engaged in the trading of futures and derivative products, any of which may be
discussed within this report.
in expansion territory for most of the past year. Taking The information in this report has been obtained or derived from sources believed by
these factors into consideration, we anticipate private Wells Fargo Securities, LLC to be reliable, but Wells Fargo Securities, LLC does not guarantee
its accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for
non-residential spending to bounce back from an estimated any loss that may result from the reliance by any person upon any such information or upon
5.8% decline this year and increase 2.8% in 2022, as any opinions set forth herein. Such information and opinions are subject to change without
commercial, institutional and manufacturing expenditures notice, are for general information only and are not intended as an offer or solicitation with
respect to the purchase or sale of any security or other financial product or as personalized
all begin to pick up modestly. investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from
affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company.
We also look for a 3.2% rise in public non-residential © 2022 Wells Fargo Securities, LLC
Important Information for Non-U.S. Recipients
construction spending in 2022 and a 7.4% increase in
For recipients in the United Kingdom, this report is distributed by Wells Fargo Securities
2023. State and local governments are now flush with International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized
cash from unexpectedly strong tax receipts and federal and regulated by the Financial Conduct Authority. For the purposes of Section 21 of the UK
Financial Services and Markets Act 2000 (“the Act”), the content of this report has been
aid, and new funding now appears to be flowing to public approved by WFSIL, an authorized person under the Act. WFSIL does not deal with retail
works projects. The bulk of COVID relief funds to state clients as defined in the Directive 2014/65/EU (“MiFID2”). The FCA rules made under the
Financial Services and Markets Act 2000 for the protection of retail clients will therefore
and local governments already have been disbursed, but
not apply, nor will the Financial Services Compensation Scheme be available. For recipients in
another $100 billion of grants are yet to be released. What’s the EEA, this report is distributed by WFSIL or Wells Fargo Securities Europe S.A. (“WFSE”).
more, the recently enacted Infrastructure Investment & WFSE is a French incorporated investment firm authorized and regulated by the Autorité de
contrôle prudentiel et de résolution and the Autorité des marchés financiers. WFSE does not
Jobs Act, which provides $550 billion of new spending for deal with retail clients as defined in the Directive 2014/65/EU (“MiFID2”). This report is not
roads, bridges, mass transit, water and numerous other intended for, and should not be relied upon by, retail clients.
infrastructure projects, stands to boost public sector
construction further, but the bulk of that spending will not
materialize for a year or more.
25Rental review Page 26 | wellsfargo.com/constructionforecast
Distributors are experiencing a rebound as 17% indicate they are renting out
much more equipment than a year ago — significantly more than last year.
Distributors continue to utilize the majority of their fleets. Most contractors
(56%) believe they will rent the same amount of equipment in 2022 as they did
in 2021, but the number of contractors who report their rentals will decrease
significantly has gone down from 9% to 2%.
(Distributors and rental companies) Compared to a year ago, how much
construction equipment are you now renting out to contractors?
2019 (2018 rentals)
46%
2020 (2019 rentals)
41%
2021 (2020 rentals)
2022 Forecast (2021 rentals) 34%
30%
26% 24% 26% 25%
22% 22%
20%
18% 17%
12% 12%
9%
7%
4% 5%
2%
Much less than Somewhat less About same as Somewhat more Much more than
a year ago than a year ago a year ago than a year ago a year ago
(15% or more) (5% – less than 15%) (15% or more) (5% – less than 15%) (15% or more)
The up/down arrows denote a significant difference compared to 2021 at the 95% confidence level.
Base: Distributors and rental companies — 86 for 2022 forecast, 80 in 2021, 102 in 2020, 127 in 2019.
“Employee shortages, material cost increases and supply chain costs
of inbound freight from overseas are all major concerns.”
— Survey respondent
27(Contractors who rented equipment) Do you think that your rental of construction equipment in 2022 compared
to 2021 will:
7% 7% 8% 5% 4% 6% 9%
11%
37% 28% 38% 32% 30% 31% 27% 35%
21% 25% increase 27% 21%
increase increase 31% increase 24% increase increase increase 26%
increase Increase significantly
26%
(15% or more)
Increase moderately
(5% – less than 15%)
Remain the same
46% 55% 50% 55%
57% 62%
49% 56% Decrease moderately
(5% – less than 15%)
Decrease significantly
7% 9% 9% 8% (15% or more)
8% 8% 7%
9% 8% 6% 9% 9%
4% 3% 2% 2%
2015 2016 2017 2018 2019 2020 2021 2022
Base: Contractors who rented construction equipment in 2021 — 162 for 2022 forecast, 86 in 2021, 139 in 2020, 204 in 2019, 119 in 2018, 155 in 2017, 208 in 2016, 189 in 2015. The up/down arrows
denote a significant difference compared to 2021 at the 95% confidence level.
(Contractors) Why do you rent construction equipment? Please select up to two reasons.
Top 2 Reasons
Flexibility; I can return equipment whenever I want 62%
Rental equipment is readily available 29%
High costs to repair and maintain my own fleet 18%
I don’t want to own/acquire equipment 13%
Long order cycles for equipment purchase 9%
Build equity before purchase 8%
Rental rates are low and attractive 5%
None of these 10%
Base: Total contractors: 168 for 2022 forecast.
Flexibility continues to be the primary reason contractors decide to rent construction equipment. Other top reasons for
renting include availability of rental equipment (29%) and high costs to repair and maintain a proprietary fleet (18%).
The most common duration for the rental period is monthly, consistent with past years.
Page 28 | wellsfargo.com/constructionforecast(Contractors) Did your company rent any construction equipment in 2021? (% — Yes)
84% 84% 82%
80% 79% 80% 79% 78% 77%
2013 2014 2015 2016 2017 2018 2019 2020 2021
Base: Total contractors — 197 for 2022 forecast, 112 in 2021, 166 in 2020, 262 in 2019, 150 in 2018, 194 in 2017, 248 in 2016,
238 in 2015, 261 in 2014.
Rental of construction equipment remains strong and on par with previous years.
Over three-quarters of contractors rented construction equipment in 2021. Of
those who did not rent in 2021, 17% predict that they will rent in 2022.
(Contractors who did not rent construction equipment in 2021) Do you think
that you will rent construction equipment in 2022? (% — Yes)
18% 18% 19%
17%
13%
10% 10%
4%
2015 2016 2017 2018 2019 2020 2021 2022
Base: Contractors that did not rent any construction equipment last year — 35^ for 2022 forecast, 26^ in 2021,
27^ in 2020, 58 in 2019, 31^ in 2018, 39^ in 2017, 40^ in 2016, 49^ in 2015. ^Small base size.
29(Contractors) What would you need to happen for you to want to buy construction equipment?
Stronger backlog of jobs 27%
Long term confidence in the national economy 22%
Long term confidence in the local economy 16%
Lower equipment costs 15%
Shorter lead time for order delivery 8%
Other 5%
Low interest rates 4%
Increasing rental costs 3%
Base: Total contractors: 179 for 2022 forecast.
A stronger backlog of jobs is most important to 27% of contractors when considering buying instead of renting. Long-term
confidence in the local/national economy along with lower equipment costs are other top driving factors in contractors’
willingness to buy equipment. Low interest rates, increasing rental costs and shorter lead time for order delivery are each top
factors for fewer than 10% of executives.
(Contractors) To what degree are equipment rental costs an influence in your decision to buy vs rent equipment in 2022?
37%
21%
18%
16%
8%
Extremely influential Very influential Somewhat influential Slightly influential Not influential at all
Contractors who gave a reason to buy construction equipment instead of rent — 179 for 2022 forecast.
The impact of rental costs on a contractor’s decision to buy or rent equipment is mixed. Just over one quarter (26%) say
rental costs are very or extremely influential, while 37% say it is somewhat influential, and an equal 37% say it is slightly or not
an influential factor.
Page 30 | wellsfargo.com/constructionforecast(Distributors) Do you think that the size of your rental fleet this year
compared to last year will:
44% 40% 43%
45%
57%
54% 55%
60% 58%
44%
40%
45% 46% 31%
43% 38% 35%
33%
11% 16% 15% 11% 12%
7% 7% 7%
3%
2014 2015 2016 2017 2018 2019 2020 2021 2022
Decrease Remain the same Increase
Base: Total distributors: 86 for 2022 forecast, 80 in 2021, 102 in 2020; 127 in 2019; 105 in 2018; 134 in 2017; 174 in 2016; 138 in 2015; 175 in 2014.
The up/down arrows denote a significant difference compared to 2021 at the 95% confidence level.
Over half of distributors (57%) expect to increase the size of their rental fleet in
2022, aligning with the increased utilization rates they experienced in the past
year. Fewer distributors (31% down from 46% last year) expect their fleet size
will remain the same. Only 12% expect to decrease rental fleet sizes, on par with
past years. Most distributors did raise their rental prices in 2021 and nearly three
quarters (72%) expect to raise rental prices in 2022. This is unsurprising given the
risk of inflation that is one of the top three industry risks for 44% of distributors.
31Industry Risks, Cost Concerns, and Opportunities Page 32 | wellsfargo.com/constructionforecast
Which of these factors poses the greatest risk to the U.S. construction industry in 2022? Please rank the top three.
Top answer % Top 3
(Ranked 1st) (Ranked 1st–3rd)
Availability of skilled workers 30% 57%
Supply chain disruptions 14% 41%
Economic uncertainty 10% 28%
Rising material costs 8% 32%
Government/regulatory policy 6% 22%
Taxes 6% 17%
Availability of domestic equipment/materials 6% 16%
Inflation in the economy 6% 31%
High labor/wage costs 4% 22%
Interest rates rising 2% 10%
Availability of offshore equipment/materials 2% 5%
Energy prices such as oil and natural gas 1% 9%
Base: Total respondents — 313 for 2022 forecast.
Almost one-third of executives ranked the availability of skilled workers as the single greatest risk
to the U.S. construction industry in 2022. When taking a broader look at the top three concerns, the
leading concern is still the availability of skilled workers followed by supply chain disruptions, rising
material costs, inflation in the economy and economic uncertainty. Up from last year, 39% of executives
said that their business has been greatly impacted by their ability to hire skilled employees. Almost half
(47%) say that it has had somewhat of an impact on their business.
To what degree has the ability to hire skilled employees impacted your business in 2021?
49%
46% 47%
38% 39%
No impact at all
24% Not too much of an impact
23%
Somewhat of an impact
10% 11%
A great deal of impact
8%
3% 4%
2019 2020 2021
Base: Total respondents — 313 for 2022 forecast, 226 in 2021, 305 in 2020. The up/down arrows denote a significant difference compared to 2021 at the 95%
confidence level
33Contractor Cost Concerns
Fiscally, contractors are most concerned about the ability to hire qualified workers with 53% citing it as their top cost concern
for their business and 68% saying it is one of their top two concerns. Other top concerns include material costs and employee
wages and other benefits.
(Contractors) Of the following cost categories, which three concern you the most? Please rank the top three.
Top answer % Top 2
(Ranked 1st) (Ranked 1st–2nd)
Ability to hire qualified workers 53% 68%
Materials costs 16% 43%
Employee wages and other benefits 15% 34%
* 61% of contractors
Equipment purchase costs 5% 11%
surveyed have more
Taxes 5% 16% than 50 employees,
implying they have health
Fuel costs 3% 10%
insurance for employees
Healthcare costs* 3% 11%
Interest rates 1% 4%
Equipment rental costs 0% 1%
Other 1% 4%
Base: Total contractors: 197 for 2022 forecast.
Page 34 | wellsfargo.com/constructionforecastWhich of these factors creates the greatest opportunity for growth in the U.S. construction industry next
year? Please rank the top three.
Top answer % Top answer %
(Ranked 1st) (Ranked 1st–3rd)
Improved qualified labor availability 17% 37%
Recent Congress passage of the Infrastructure Bill 17% 35%
Improved overall economy 15% 47%
Stable political climate 13% 31%
Low interest rates 11% 35%
Improving non-residential construction market 9% 26%
Increased government spending 6% 21%
Improving residential construction market 5% 17%
Increased consumer confidence 4% 25%
Industry favorable regulatory environment 3% 17%
Base: Total respondents — 313 for 2022 forecast.
Loosely mirroring risks, executives report that an improved overall economy (47%), improved qualified labor
availability (37%) and the passage of the Infrastructure Bill (35%) are the three greatest factors that would
create opportunity for growth in the construction industry next year. Other top areas that could create
opportunities are low interest rates (35%) and a stable political climate (31%).
35“If we cannot get enough equipment to supply our customers, business will fall off. We have gone from a full lot to nothing and are selling everything as it comes in. Next year we start with an empty lot.” — Survey respondent Page 36 | wellsfargo.com/constructionforecast
“Not overly optimistic with
reduced labor availability and
rising inflation/supply chain
issues. Commercial markets
have great uncertainty due to
long-term impact of COVID
business changes.”
— Survey respondent
“There appears to be a
strong economic demand for
construction services in both
the commercial construction
industry and in the private and
public sectors.”
— Survey respondent
“We have a huge backlog of sales
that need to be cleaned out, but
the baseline demand is still out
there which is very encouraging.”
— Survey respondent
37About us Wells Fargo Equipment Finance Wells Fargo Equipment Finance provides businesses nationwide with competitive fixed- and floating-rate loans and leases that cover a full range of commercial equipment, floor planning, and inventory financing. We have industry financing specialists dedicated to construction, energy, commercial and specialty vehicles, marine, rail, aircraft, and vendor financing programs. We offer a broad range of direct and vendor finance programs for equipment end-users, distributors, and manufacturers. Wells Fargo Equipment Finance is a leading bank-affiliated equipment leasing and finance provider, with more than $39 billion in assets under management, more than 300,000 customers, and 2,000 team members.1 Construction equipment financing We have deep expertise in the construction industry and offer tailored financing and leasing solutions. Our nationwide coverage allows us to connect our customers with the correct products to help meet their financial needs and Wells Fargo Equipment Finance is a leading provider that offers complete, creative financial solutions for the entire industry. With end-user leases and loans, dealer retail referral programs, dealer rental fleet and floorplan financing, and manufacturer subsidized retail and inventory programs, we have products suited to your particular needs. To learn more: call 1-866-726-4714 or visit wellsfargo.com/constructionforecast 1. Company data as of January 2022. Page 38 | wellsfargo.com/constructionforecast
39
© 2022 Wells Fargo Bank, N.A. All rights reserved. All transactions are subject to credit approval. Some restrictions may apply. Wells Fargo Equipment Finance is the trade name for certain equipment leasing and finance businesses of Wells Fargo Bank, N.A., and its subsidiaries. Equipment financing transactions are provided in Canada by Wells Fargo Equipment Finance Company. This publication has been prepared for information purposes only and is not intended as a recommendation nor does it constitute professional advice. This publication includes information that has been obtained from and is based on third party sources which have not been independently verified. Wells Fargo Equipment Finance (WFEF) and its affiliates do not guarantee the accuracy, completeness, adequacy, or timeliness of the information contained in this publication and any and all express or implied representations or warranties are specifically disclaimed. All valuations, opinions, projections, and estimates are subject to change without notice. Nothing contained within the publication constitutes financial, legal, tax, accounting, or other advice, nor should any decisions be made solely based on this publication. The publication shall not be relied upon in taking or refraining from taking any action. WFEF is not and makes no representations to being an agent for or advisor to any party, nor does WFEF have any fiduciary obligations to any party based on the publication.
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