A new narrative is taking shape, in contrast to contractor sentiments than we’ve been seeing for the last couple of years.
If you’re invested in any way in the residential contractor space, pay attention to how contractor outlook for the future of 2023 and especially 2024 is changing.
Here’s what we’re seeing:
1. Uncertainty Creeping In About Future Business Outlook
Results from the Farnsworth Quarterly Contractor Index are beginning to show a conflict in contractor sentiments. Today’s is strong, but pessimism creeping into their expectations for tomorrow.
Looking forward, for the first time in a few years, we see a notable decline in contractor confidence regarding getting new business in the next 6 months. The Q2 of 2023 average across all trades is 73 out of 100, with 100 representing ‘Extremely Confident’ and anything below 50 representing negative sentiments.
Comparatively, contractor confidence was a score of 83 this time last year, in Q2 of 2022, and a score of 82 two years ago, in Q2 of 2021.
2. The Majority of Contractors Do NOT Expect to Increase Revenue in the Next 12 Months
While the historic trends is that contractors report a positive boost in revenue sentiments in Q2 each year, not so in 2023. For the first time in a few years, we see a decline in the percent of contractors forecasting revenue growth over the next 12 months.
Of the contractors surveyed, 43% expect an increase in revenue, down from 58% just recently in Q1 of 2023 and down from 63% this time last year, in Q2 of 2022.
Further, roughly 1 in 5contractors expect their company’s revenue to decrease in the next 12 months.
3. Current DIFM Home Improvement Project Activities Remain Strong
While attitudes towards the future have grown less optimistic, the DIFM remodeling activity of today continues to be strong. Contractors reported a current activity level of 70 out of 100, with 100 being Extremely Busy and anything below 50 being a degree of slowness. These reported activity levels match activity levels from the past two years; it was 71 this time last year and also in Q2 of 2021.
Further, the average weeks of project backlogs reported currently are 8 weeks. This time last year, in Q2 of 2022, that was 7.4 weeks.
Why are Contractors Beginning to Feel Less Confident Looking Ahead?
What is causing a more pessimistic outlook among Pros compared to the last two years? We see clues when we look at
1. Quality of Leads
2. Project Sizes
3. Labor Challenges
Quality of Remodeling Leads Declining
Contractors’ quality of leads declined from Q1 of 2023, in contrast to the typical increases annually in the second quarter when we look at the historical data over the last 5 years of tracking contractor sentiments.
Remodeling Project Sizes Decreasing
We also see project sizes decreasing. In Q2, 32% of Pros said their project size increased over the past 3 months with 23% saying it decreased. Last quarter, it was 39% increased with only 13% saying decreased.
Here are the percentage of current projects that are falling into various total project price points in Q2 of 2023.
This “boots on the ground” reality contractors are reporting matches what homeowners had expressed their home improvement spend to likely be in Q2. Based on the latest findings in HIRI’s Home Improvement Quarterly Project Activity Tracker, homeowner’s planned project spend in Q2 of 2023 was expected to be an average of 17% lower across home improvement product categories compared to Q1 of 2023.
The majority of positive remodeling sentiment is found for projects that will cost less than $5,000 total according to additional findings from the Homeowner Monthly Home Improvement Tracker.
Skilled Labor Challenges Reducing Contractor Confidence
The ongoing skilled labor challenge continue to play into contractor confidence as well. In Q1, contractors reported a confidence score of 83 out of 100, whereas confidence dropped to 73 in Q2, with a score of 100 meaning “Extremely Confident” and anything under 50 representing negative sentiments.
Determining Your Best Next Move
For industry insights on what this means specifically to your business and what to be paying attention to going forward regarding your customers, brand and products, simply schedule a consultation.
Be sure to check out the full report of our most current Farnsworth Contractor Index below: