2006 has been a good year for the overall economy and for construction. Many believe that we are now headed for a dip, downturn, drop, decrease, or whatever else you can call a slowing economy. This is probably true but even so it is not tragic and does not warrant any level or degree of panic. The housing market will be down. This is of major concern to many but shouldn't be. If you look at the facts they don't spell gloom and doom ... 2006 will end with 1.9 million to 1.96 million houses and 2007 will probably be end around the 1.8-million level. It wasn't that many years ago when the industry was struggling to get to the million-unit level.

While housing slips a little commercial, industrial and highway construction gain some ground and will carry the industry for the next couple of years. Overall projected growth for the country is between 2 percent and 2.9 percent. Economists tell us that if annual growth is around 2.5 percent or better the economy is good. Concerns for the coming year are interest rates and inflation. Almost every single forecaster has voiced an opinion that the Fed will be cutting interest rates again by the first quarter of '06, this in an effort to slow inflation.

The construction industry has had more than its fair share of inflation with higher-than-average prices for materials and supplies. Fortunately fuel prices have been dropping as we near the end of the year. The question is, "Will they stay down, and if so for how long?" There is no reliable answer to that question.

The information gathered for our annual Buyers' Intentions Study agrees with these projections. According to the survey, the majority of the respondents believe that the economy will remain stable with a relatively high percentage believing that there will be some increase. Compared to last year's survey 21.5 percent were expecting a significant increase for this year while only 9.9 percent of our respondents are significantly optimistic. When you look at the detail in the charts you'll see that less than 20 percent are expecting a decrease.

An interesting dynamic is the change in the percentage of new equipment purchased versus used. New equipment purchases went from 55.1 percent to 61 percent with used equipment purchases dropping from 33.9 percent to 29.2 percent. One explanation is that there has been a shortage of used equipment due to the level of work being done.

What is going to be purchased in 2007? On top of the list it's computers and computer software and this is no surprise as our industry becomes more computer integrated. There has been an influx of new management software and an increase in the awareness that this tool may not have a lot of horsepower but it certainly can improve productivity and profitability.

Trucks are always near the top of the list, and this year is no exception, even with new, more stringent emission laws going into effect. You'll notice as you go through the list that there are no radical changes or shifts. Some experts think the compact and light equipment end of the market may suffer as a result of the decline in homebuilding but our respondents don't support this concept. It looks like business as usual.

The biggest change is the percentage of respondents conducting business online daily — it's up to 60.3 percent compared to last year's 50.7 percent with more than 75 percent of the construction community online more than a couple of times a week. Surprisingly the online activity hasn't changed much, except for a noticeable drop in the number of contractors researching financing online.

There have been some changes in the online purchase activity. The online purchase of supplies has increased by approximately 5 percent and parts by 8 percent. Nothing — no online purchases — has dropped from 20 percent to around 15 percent.

Some economists contend that we are just now in the middle of an economic cycle that will continue to grow as we get through next year. With a population of over 300 million, the demand for housing continues to escalate and along with it the demand for everything else. Of all markets, construction is probably the most secure. People need places to live and work; they need a way to get to work and home; they need food and supplies for daily living and the stores from which they buy them; they need theaters and sports arenas, parks and recreational facilities; they need schools, churches, libraries, and hospitals; and they need the infrastructure that makes it possible to take advantage of all these lifestyle components. The only place they can get any of them is here, in the construction market; the one market that really does turn dreams into reality.

We hope the information in this survey is useful to you and helps you become better prepared for doing business in 2007.

The survey was conducted using subscriber e-mail addresses from the circulation of all 14 Associated Construction Publications (ACP) magazines in addition to respondents in the construction industry accessing the survey online. Surveys were completed online as hosted by the regional publications' website, www.acppubs.com. The responses were tabulated by the online database program used to administer the survey. These results were used to report the percentages in the following charts. For the purpose of this study, all responses are reported as a national aggregate.

All contractors who are subscribers with known e-mail addresses were eligible to participate, opening this year's survey to a population of 22,894 construction professionals who were contacted by e-mail to complete the survey. Mentioning the survey in editorial copy, the individual magazines also solicited responses from their readership. In all, 480 respondents completed the survey.

The following results in both text and graphic format highlight the issues from the survey. The early questions ask about the demographic profile of the individual respondents and the firms for which they work. This information will provide an overview of the respondents who participated in the survey. The middle section of the questionnaire asks about equipment buying decisions, both present and future. From this section, next year's forecasts regarding equipment — from types of equipment desired to means of acquiring the equipment — are generated. Finally, the last section of the survey asks comprehensive questions surrounding the use of the Internet for business purposes. With the growing ease of using the Internet, knowledge about how other construction industry professionals are using this additional research and purchasing tool is summarized. Together, the three sections combine to provide a profile of construction industry professionals throughout the country who are making decisions about equipment purchases with varying levels of information technology assistance via the Internet.

1. Which of the following best describes the replacement value of your construction equipment?

As indicated in the chart, most respondents (82.6 percent) can replace their construction equipment for less than $5 million. Once again, the single-greatest category of responses represents the smallest in terms of financial investment — under $500,000. Nationally, 47.8 percent of respondents could replace their equipment for under $500,000. These results are important in recognizing that the vast majority of respondents have a small (dollar-value) inventory of construction equipment. 2006 saw a greater number of smaller-inventory firms participating in the survey than in previous years; a trend noticed for several years. The interesting change to note is that this year the number of firms participating from the largest category, over $10 million, has more than doubled from 4.8 percent last year to 11.5 percent this year.

2. What is your job title?

Although presidents and owners of firms are still likely respondents to the survey — their combined responses equal 47.1 percent of the total — their response rate signals a reduction in comparison to last year's 55.5 percent. This year managers are responding to the survey with greater frequency, with 27 percent reporting themselves as managers, an increase from last year's 20.7 percent. The 2007 survey presents organization-wide viewpoints of the coming year as managers throughout the organizations participate in the survey with a greater diversity of positions represented than in previous years.

3. Which of the following best describes your authority to specify or approve the purchase of capital investment equipment for your firm?

Nationally, 79.9 percent of respondents either have sole approval authority or participate in approving capital investment equipment, compared to 89.4 percent last year. The respondents who request new equipment are increasing; they now represent 11.5 percent of respondents, an increase from 5.7 percent last year. The percentage of those who do not participate in the process (8.6 percent) has increased from last year (4.8 percent). The decreasing percentage of respondents who are responsible for approving expenditures speaks to the more diverse levels of management responding to this year's survey than in recent years.

4. Which of the following best indicates your firm's annual contract volume?

This year's respondent pool shows significant growth in the largest category. Annual contract volume in the under $500,000 category received 14.9 percent of responses (13.6 percent last year); $500,000 to $1 million, 14.5 percent (20.2 percent last year); $1 million to $5 million, 25.7 percent (29.8 percent last year); $5 million to $10 million, 12.2 percent (13.2 percent last year); and over $10 million, 32.6 percent of responses (23.2 percent last year).

Even though it is the second most-populated category, the category for contract volume between $1 million and $5 million has shown signs of decline over the last seven years with a brief rebound last year and the year before (36.1 percent seven years ago, 34.4 percent six years ago, 33.5 percent five years ago, 32.8 percent four years ago, 21.5 percent three years ago, 24.6 percent two years ago, 29.8 percent last year, and now 25.7 percent of respondents).

Seven years ago, the percentage of responses estimating annual contract volume to be between $5 million and $10 million was 14.2 percent, six years ago it was 10.9 percent, five years ago it was 11.5 percent, four years ago it was 11.3 percent, three years ago it was 10.7 percent, two years ago it was 11.3 percent, last year it was 13.2 percent, and this year's response rate is 12.2 percent. This has been the category with the least amount of year-to-year fluctuation.

Continuing the trend that began last year, this year there are even more respondents representing large-volume contractors. In the over-$10-million category, seven years ago had 23.8 percent of responses in that bracket, six years ago only had 14.7 percent of respondents reporting annual contract volume of that magnitude, five years ago there was a slight increase to 15.3 percent of respondents, four years ago there was another slight increase to 18.8 percent, three years ago there was a significant increase to 31.8 percent, two years ago the number decreased to 24.4 percent of respondents, last year 23.2 percent of respondents were in this category, and this year the number has jumped to 32.6 percent of respondents. A category characterized by annual fluctuations in participation, the largest contracting firms represent nearly a third of all responses this year.

5. Which of the following statements best indicates your view of the 2007 construction market? Construction in MY market will ...

... do well, according to most respondents. Respondents this year are cautiously optimistic for 2007. Last year, almost 92 percent of respondents were expecting market stabilization or growth — 32.5 percent believed the market would remain stable, 37.7 percent believed it would increase some and 21.5 percent expected a significant increase. This year, 80.3 percent of respondents expect market stabilization or growth — 39.2 percent predict the market will remain stable, 31.2 percent expect some growth and 9.9 percent expect a significant increase. Those respondents expecting a significant increase have decreased substantially in the last year, going from 21.5 percent of respondents last year to only 9.9 percent this year.

Reversing the trend of the last few years, this year more respondents are expecting a decreasing market. Five years ago, 28.1 percent of respondents predicted a decreasing market for 2002 (that survey immediately followed the events of 9/11), a jump from the 15.6 percent of the respondents nationally who said the market would decrease somewhat in 2001. Four years ago that percent fell to 21.4 percent, signaling a slow economic rebound for 2003. Three years ago, the number of respondents believing 2004 held a declining market decreased even further to 14 percent. Two years ago the respondents who viewed 2005 as a year of decrease further slipped to 10.7 percent. Last year, respondents expecting a decline in 2006 represent an even smaller percentage, 8.4 percent. This year, respondents expecting a decline in 2007 have grown to 19.7 percent.

6. What percent of your equipment does your company rent, lease and/or own?

The trend still exists whereby respondents are increasing their renting of more equipment and owning of less equipment than in previous years. Four years ago, respondents reported renting 11 percent of their construction equipment, leasing 8 percent of their equipment and owning 81 percent of their equipment fleet. Three years ago, 15.1 percent of the fleet was rented, 8.3 percent leased and 76.6 percent owned. Two years ago, 21.5 percent of the fleet was rented, 10.0 percent leased and 80.6 percent owned (slight overstatement of responses). Last year the trend continued — 18.8 percent of the fleet was rented, 6.8 percent leased and 69.5 percent owned (slight understatement of responses). This year, 22.2 percent of the fleet is rented, 8.4 percent is leased and 69.5 percent is owned (slight rounding error). From the survey four years ago to the survey this year, the percentage of fleets rented has increased from 11 percent to 22.2 percent and the percentage of fleets owned has decreased from 81 percent to 69.5 percent. Interestingly, the optimistic gains in the market expected by respondents last year did not translate to an increase in equipment ownership this year. Instead, there was another increase reported in rented equipment.

7. What percent of your equipment fleet do you purchase new and/or used?

The survey instrument allows respondents the freedom of not having their responses equal 100 percent, so there is a slight understatement of answers this year. Increasing from last year's 55.1 percent, this year respondents report that 61 percent of their equipment is purchased new and 29.2 percent is bought as used equipment. With the exception of last year's response, there has been an established trend toward purchasing equipment new rather than used.

8. What equipment does your firm plan to acquire in 2007? (May indicate more than one response.)

Respondents are planning to acquire an assortment of equipment in 2007. Thirty-six pieces of equipment were included in the survey and all pieces were listed as planned acquisitions for 2007. Respondents were asked to check which pieces of equipment they plan to acquire in 2007 and indicate whether the equipment would be rented or bought. The 17 pieces of equipment listed in the accompanying chart are representative of the top 10 rent and purchase options listed by respondents. There are 17 pieces of equipment listed rather than 10 because not each piece of equipment fell within the top 10 for each category. The list of the equipment includes aerial work platforms, air compressors, backhoe loaders, ride-on compactors*, computers/software, hydraulic cranes, crawler dozers, hydraulic excavators, generators, lasers, light towers*, skid-steer loaders*, pressure washers, flatbed trailers, heavy-duty trucks (over 26,000 GVW), light to medium trucks (to 26,000 GVW), and welding equipment. Equipment followed by an asterisk (*) denotes equipment not mentioned in the top 10 lists from last year.

9. From what type of business do you acquire equipment? (May indicate more than one response.)

Based on the responses, companies use a wide array of businesses for purchasing equipment. The favorite every year has remained the dealer/distributor with a response of 82.1 percent. The second and third most-mentioned businesses are a used equipment dealer and a rental chain (28.3 percent and 28.1 percent, respectively). Equipment is also purchased from an auction company (25 percent), manufacturers' representatives (20.2 percent), other contractors (17.5 percent), and through a reseller (12.5 percent). This list, in order of most responses to least, closely matches the order of response percentages from previous surveys. This consistency through seven years of data illustrates a fairly stable and established distribution chain for selling equipment to the construction professional.

10. Which of the following best describes your primary type of business? (May indicate more than one response.)

Most respondents identified their business as one of three categories — as general building construction (32.4 percent), as highway and heavy construction (22.2 percent) or special trade contractor (18 percent). Other industry member (14.6 percent) and other contractor (10.2 percent) help to round out the types of businesses surveyed. Very few respondents (2.5 percent) classify themselves as a construction material producer.

11. Which of the following best describes your primary type of work?

The top 10 responses on a national level represent the key work-related job areas covered by respondents. The primary types of work include excavating/grading (26 percent), commercial building (25.6 percent), earthmoving (21 percent), water and/or sewer work (20 percent), carpentry (17.9 percent), demolition (14 percent), clearing/grubbing (13.1 percent), concrete building (12.3 percent), asphalt paving (10.8 percent), and concrete paving (9.6 percent). These categories coincide with the types of business respondents reported — general building, highway and heavy construction, and special trade contractors. Overall, the type of work done by the responding subscribers is varied and represents all aspects of the construction industry.

12. How far from your home office does your firm do the majority of its work?

Due to the local nature of the construction industry, it is not surprising that 72.5 percent of respondents work within 90 miles of their home office and another 11 percent work between 90 and 140 miles of their home office. Together, 83.5 percent of firms surveyed are working within a 140-mile radius. The remaining 16.5 percent of respondents work over 140 miles from their home office. These numbers are nearly identical to the results of the last three years.

Reasons for the close proximity of firms to the field are diverse. Contractors understand the importance of maintaining and nurturing work relationships with customers, suppliers, dealers, employees, banks, and communities. Effectively maintaining these ties requires a presence close to the home office and most of the firms represented in the survey keep their business close to home.

13. How often do you conduct business on the Internet?

This year's majority of respondents report great proficiency with computers and the Internet, like respondents for the last three years. Using the computer for business daily are 60.3 percent of respondents. Intermediate use of two to three times a week is reported by 21.1 percent of respondents. Still surprising, 16.1 percent report infrequent use and 2.5 percent report never using the Internet for business purposes. Since the survey was only available online, it is interesting to note that even though all respondents are Internet equipped and users of the technology, there are still respondents who do not use the Internet regularly for business activity. For those construction professionals for whom the Internet is an integral part of their business, their use of the Internet is only going to grow; however, there continues to be a group for whom the Internet is not a business consideration. It is interesting to note that the group of non-users is shrinking (from roughly one-third two years ago to one-quarter last year to less than one-fifth this year), although it is perhaps not shrinking as quickly as expected considering that more and more business is conducted online each year.

14. Which business activities do you conduct online? (Respondents may indicate more than one response.)

When asked which activities are conducted online, respondents report using the Internet most often for e-mail (84.8 percent). Also of note, 72.5 percent of respondents report using the Internet for researching new equipment. Other activities include research (insurance, 17.1 percent; used equipment, 50.6 percent; financing, 13.1 percent; rental, 26.9 percent; industry news, 49 percent; parts, 36.7 percent; suppliers, 43.8 percent; and service, 20.2 percent), visiting websites of other construction-related organizations (dealer websites, 52.3 percent; manufacturer websites, 63.1 percent; association websites, 42.9 percent; and magazine websites, 38.8 percent), checking equipment prices (43.3 percent), checking the weather (74.8 percent), and making travel arrangements (56 percent). For the last several years, the Internet has been used extensively for business and business-related purposes.

15. What do you purchase online? (Respondents may indicate more than one response.)

Online purchases are stabilizing in terms of percentages over the last three years. Two years ago, 22.2 percent reported no purchases; last year that number was 19.8 percent and this year 15 percent report purchasing nothing online. New and used pieces of equipment are purchased online, but the percentage of respondents who do so has made yet another small increase to 17.9 percent and remained at 19.4 percent, respectively. Still popular are purchases of parts (49.4 percent), supplies (59.4 percent), travel (48.3 percent), books (40.4 percent), and other goods and services (22.3 percent). Online purchases that increased this year over last year's percentages include new equipment, parts, supplies, travel, and other goods and services.

This year's survey results indicate a cautious approach to 2007 with most respondents feeling the market will remain stable or increase slightly. Many of the current fleets still reflect signs of ownership, although the rates of ownership have decreased from last year and rental usage has increased.

This year, the respondents from businesses with $500,000 to $5 million in annual contract volume have decreased by about 10 percent. Meanwhile, roughly a third of respondents represent firms in the over-$10-million category, a significant increase from last year. Over 47 percent of respondents were also either the owner of their company or the president. Equipment purchase plans for 2007 include many of the same machines that have been listed in previous years, with the addition of three new items to the top 10 list.

Remaining cognizant of the environment in which construction professionals work, the intent of this survey is to help highlight the changes that are moving the industry so that businesses can react to these influences and focus activities to help them operate profitably. Competitive strategies can then be effectively derived from such market and industry knowledge.

Your comments and suggestions regarding this Buyers' Intentions Study are appreciated. You can mail, fax or e-mail us.

Mail:

Associated Construction Publications

30 Technology Parkway South, Suite 100

Norcross, GA 30092

Fax: (770) 417-4138

E-mail:

agelaude@reedbusiness.com or gsitek@reedbusiness.com