Blue Skies Ahead

A favorable economic outlook for the construction industry bodes well for those of us in rental.

It seems whenever groups of people get together to predict the future of the construction industry, it's common to hear tales of doom and gloom. Perhaps those in construction are a generally pessimistic group or maybe it's a result of being burned by one too many economic downturns in the past, but there never seems to be any shortage of Chicken Littles running around saying the sky is falling. And when these naysayers deliver a negative forecast for construction, the next leap is to the rental industry.

According to Chuck Yengst, a well-regarded construction industry analyst who spoke at the recent National Fluid Power Association (NFPA) 2006 Economic Outlook Conference, the construction industry is anything but doom and gloom. In fact, it's thriving. It's true that residential construction is slowing from last year and housing starts are dropping modestly, but non-residential construction is growing (up 22 percent over last year) and is expected to continue growing, as is public construction (up 10 percent from last year) and highway spending (up 20 percent). What's more is that while residential construction is cooling off somewhat, it remains robust when compared with historical trends.

What did Yengst have to say about the rental industry? In short, he painted a very sunny outlook. Rental rates continue to move up while utilization is at an all-time high. Most companies are realizing healthy profits and there's a solid used equipment market that has rental businesses turning over their equipment faster to maximize their returns.

So yes, residential building is cooling, but the slow down is more than made up for by the strengths of other building sectors. In general, construction is booming and that means more business for you, the rental businesses that supply more and more of the equipment used by contractors today.

For those of us who aren't consultants with degrees in economics — and who, presumably, do not have access to all the data that those with the credentials do — it's natural to focus on the negative when interpreting economic forecasts or when making casual predictions while discussing the future with our peers. I believe it's a defense mechanism of human nature that we tend to sandbag a bit and I don't think it's too far off base to say most of us are a little superstitious and afraid that being too optimistic will jinx the future.

On the other side of the coin, a certain degree of pessimism — or better yet, realism — is necessary, but we should beware of being too cautious. We need to hear good news from time to time or we run the risk of creating a self-fulfilling prophecy that can doom us to failure. So take comfort in the numbers and in Yengst's prediction for strong construction and rental markets. The forecast (for now) calls for blue skies and sunshine.