As spring construction projects gain momentum, the 2021 Construction Industry Forecast shows cautious optimism among U.S. distributors and contractors. The sector remains watchful in the short term, with brighter hopes for the long term.
While 2020 was a year of turmoil and uncertainty, construction businesses demonstrated tremendous resilience. Few achieved significant profits, but the majority met their obligations.
This year brings greater opportunity and much-needed clarity for the industry. The pandemic’s hold on the economy is loosening. A new administration in Washington, D.C. brings stability and an appetite for infrastructure spending. Construction employment forecasts show positive upward trends. All provide a stronger foundation for business decision-making and recovery.
Industry optimism scores a 78
Here are a few observations for 2021, based on our 45th annual industry report.
A brighter outlook—but still wary. Our 2021 optimism quotient scored a 78, just three points above the pessimism range. Survey timing last November definitely played a role in this number, when all businesses were struggling with uncertain election results and a second surge in coronavirus cases. Distributors show a slightly more positive attitude (80) compared contractors (75). Overall, most expect their net profits to remain the same or increase in 2021.
Delays fuel used equipment demand. OEMs continue to struggle with COVID-related supply chain issues. Prices are higher and timelines longer for new construction equipment. As a result, demand for used equipment is up, along with utilization rates for rentals. Slightly more than half of distributors predict used equipment sales will increase this year, compared to 2020 levels.
Residential construction remains strong. While retail, hospitality, and other projects took a dramatic hit with the onset of the pandemic, residential projects continue to boom. Thanks to government stimulus payments and work-from-home efficiencies, many consumers have more discretionary income, which they’re putting to work in new home construction.
New opportunities for infrastructure. At the national level, bold new infrastructure spending is grabbing the headlines. How that enthusiasm translates to actual investments is still in play, but the industry has reason for optimism about new road and bridge work across the country.
Stay focused going forward
As your organization seeks traction in 2021, it’s important to monitor both the rebound and the risk factors in your area. We recommend working with your bank to:
Preserve liquidity. With recovery still in the early stages and low rates in force, it’s smart to continue a conservative approach to cash flow and the balance sheet. Where possible, preserve liquidity and defer payments until you’re confident of a long-term rebound. For new financing, look for extended repayment options.
Proactively manage PPP financing. If your business took advantage of government-backed Paycheck Protection Program (PPP) loans in 2020, work now with your bank to apply for loan forgiveness. If you still need help, ask about the latest round of PPP financing, which can cover payroll costs and employee benefits, worker protection expenses related to COVID-19, and certain supplier costs for operations.
Monitor regional progress. Right now, energy-producing states are most optimistic; the west and northeastern U.S. are most cautious. Progress will vary by region and project type, making local intelligence critical for business decisions.
Position yourself to compete. Reinvention maximizes your options and keeps your firm competitive as new work becomes available. Look for ways to redirect your resources to land new projects. Expanding to adjacent interests is also a great way to pick up short-term business.
For further insights, download the full 2021 Construction Industry Forecast (PDF). Then, contact your banker. Wells Fargo maintains valuable construction industry resources and expertise to help you improve your competitive position and grow your business. Our nationwide coverage helps us deliver tailored guidance and complete, creative financial solutions.