2007 Buyers' Intentions Study

By Anne Gelaude and Greg Sitek -- Associated Construction Publications, 11/15/2006

November 15, 2006

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.

Click here to go to the detailed results from the survey.

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