Forecast: Rolling into 2005 feels a little like 1999 for our contractor respondents

Unlike last fall’s uncertainty, contractors responding to our 2005 forecast have a firmer foundation of optimism going into next year. To get a snapshot of the level of good feeling out there, just compare the number of contractor respondents predicting a business increase this year compared with those doing the same in gangbuster 1999.

In the 1999 forecast, 69 percent of contractor respondents surveyed in 1998 said they expected their business to increase in the coming year. The number of contractors predicting the same thing this year is just two percentage points lower.

Part of the reason for this general cheerfulness is how good of a business year 2004 has proven thus far for most contractor respondents. Around 56 percent told us their business had increased this year over 2003, with 18 percent saying they’d seen increases of more than 8 percent. This compares with 2002, when 47 percent said they had experienced increases and 2003, with 50 percent reporting increases.

The number of contractor respondents who rate the overall condition of their company either “excellent” or “good” remained dead-on with last year’s forecast: 81 percent.
Echoing 2004, respondents cite housing developments, commercial projects and utility work as the top three 2005 markets offering the most potential for their companies.

EQUIPMENT PLANS
First, let’s delve into the bonus depreciation, which will expire at the end of this year. While technically not a 2005 matter, it will definitely have an impact on contractors’ 2005 purchase plans if they push planned 2005 buys back into 2004 to take advantage of this federal accelerated depreciation program. Now that we’re down to the wire on taking advantage of the bonus depreciation, it’s interesting to see the impact it has made to date on respondents’ purchasing patterns.

Thirty-one percent said it had been a definite factor in buying decisions they’ve already made or plan to make (Equipment World conducted this survey in September). Another 21 percent said there was still a possibility they might take advantage of the bonus depreciation before the end of the year. And just under half of respondents said it had no effect on their purchasing patterns.

Rentals and rental purchase options gained four percentage points over last year’s survey (53 percent, up from 49 percent in the 2004 forecast) to squeak by financing (50 percent) as the most popular equipment acquisition option. Paying cash on the barrelhead also remains in the top three equipment acquisition options, with 45 percent of respondents saying they plan to use this method.

More respondents this year than last year (56 percent compared to 51 percent in 2004) say they plan to increase the size of their equipment fleet. The number of respondents who said they plan to buy certain types of equipment increased, including those who plan to buy pickup trucks, electric hand tools, welding equipment, crawler dozers and compaction rollers.

RENTAL PLANS, RATES GO UP
The number of contractor respondents who said they had spent more on rentals this year than last year increased by 6 percentage points. The top reasons they listed for renting more included the need for specialized equipment, the fact they had more jobs and the use of fill-in machines for peak periods. Those people who said they had rented less in 2004 listed less work, the preference to own equipment and better deals on equipment purchases as their top reasons.

Going into 2005, the number of contractors who said they would increase the number of machines they rent or lease next year went up 12 percentage points over those answering the same question in last year’s forecast. Excavators ranked high on the list of equipment contractors plan to rent in 2005, with 40 percent of respondents indicating they would rent these machines.

The number of 2005 forecast contractor respondents saying they would rent the top three earthmoving rental machines – excavators, backhoes and skid steers – now is within 4 percentage points of the number of respondents in the 2000 forecast who said they planned to rent these machines.

Cognizant that rental rates have been low for some time, 78 percent of respondents say they expect these rates to increase in 2005. This compares to 63 percent of respondents who said the same in last year’s survey.

AND FINALLY …
Even though the economy is on the upswing, it doesn’t mean it’s off the radar screen on the list of concerns contractors cite: only pocketbook-emptying insurance costs were ahead when respondents were asked to list their major business concerns. Reflecting manufacturers’ recent price hikes, “cost of equipment” also made its appearance on the list of top five concerns, with 11 percent more respondents saying this was a worry compared to last year’s survey.