While it’s anybody’s guess as to how quickly equipment manufacturing will recover to pre-COVID 19 pandemic levels, AEM members are expressing optimism about both the short-term and long-term health of their industry and the markets it serves.
The consensus among member company C-suite executives is the global economy and U.S. economy will take longer to recover than equipment manufacturers and – perhaps more specifically – their own companies, according to AEM’s latest Industry Qualitative Insights.
“We’ve asked this question of our members a couple of times over the course of the past year and, in the last six months, we’ve started to see improvements in our members’ perceptions. While this could certainly be tied to the increased level of control they have over their own companies as of late, we’ve found it is more likely due to the better position our industry is in compared to other, more affected, aspects of our economy.”
said AEM Director of Market Intelligence Benjamin Duyck.
2020 VS. 2021
2020 began on a solid note for AEM members and their customers. Low-interest rates set up the construction industry to outperform the larger economy, and the impacts of ongoing trade wars were mitigated by a variety of other positive factors. The U.S. signed a phase-one trade agreement with China, leading to further optimism.
Now, a year later, AEM members serving the construction industry feel their output will bounce back within a year. On the ag side, AEM members feel a full recovery is very imminent. Though, representatives from both sectors readily admit a full recovery of the manufacturing supply chain will take a little bit longer.
Demand should remain stable or see low growth – roughly in the range of 6% in almost all categories – over the next 12 months.
“Ultimately, we see the majority of responders feel the market was growing year over year. More important to me, however, is a big improvement in terms of quarter-to-quarter growth.”
Construction Equipment Sector Outlook
It’s clear AEM members serving the construction industry adjusted to “the new normal” brought on by the COVID-19 pandemic in 2020, as evidenced by their Qualitative Insights feedback:
- 50% of members feel the market is up when compared to the same period a year ago
- About 27% felt it is stable from early 2020
- Quarter over quarter, about 71% of members felt the market was improving
“Construction markets in the U.S. went strong into 2020 with low-interest rates. However, a stronger construction industry does not necessarily translate to more machinery purchases. And, throughout 2020, it appears many contractors were delaying their purchases as much as they possibly could, which explains the improvements quarter over quarter.”
Optimism levels are roughly the same as they were in early 2018, and they are not expected to drop in the near term, according to Duyck.
“Optimism for the next 12 months is also high. Earlier in the year, we had more than 10% of members expect a recession, and we entered one, albeit briefly. Now the number is back down to 2.2%. Half of the members expect normal growth to resume and about a quarter feels above-normal growth is within reach. Only 3.3% expected further declines.”
Ag Equipment Sector Outlook
As is the case with their counterparts on the construction site, AEM members serving the ag industry are very optimistic about their prospects for the future.
While demand remained strong, production dropped, leading to inventories being reduced to the lowest levels in roughly 10 years. Combined with the fact that 2020 started with a phase-one trade agreement, low-interest rates, and substantial support for farm income, and the recipe is there for a strong immediate outlook.
“Our perception data is showing net rising indexes that became positive last quarter and continue to improve,”
Inventories and Employment
According to Duyck, the Net Rising Index for Inventories – from a quarter-over-quarter standpoint – continues to drop with time. AEM members surveyed – roughly 50% – indicate inventory levels are too low. Meanwhile, employment and wages are ticking back up.
“Employment wise, though, the situation in ag equipment seems to be running ahead of construction equipment, as the past year was better for the former,”
Over the last 12 months, members have indicated overall growth in the market with more members experiencing growth than they have declined. In many of the product categories, growth is in the 6-10% range.
“It should be noted that we are just looking at individual companies, not considering their size, and the demand equation takes into consideration new orders,”
“Overall, there is overwhelming consensus and optimism. For the next 12 months, the market looks green.”