Despite continuing mixed signals in the U.S. economy, the North American construction equipment market should see at least modest improvement in 2017 and beyond, a leading equipment economist predicts.
“Look for modest sales improvement in 2017 across the board for most products and we will also see a slight tug on production to get more out the door,” said Charles R. Yengst, president of Yengst Associates, writing in Diesel Progress magazine’s Forecast 2017. “It’s not time for wild celebration, but short of a recession, increased taxes on businesses and individuals and any serious catastrophes, we should be looking up and smiling at this time next year.”
If it sounds like Yengst is hedging his bets, that’s because he is. He cited good news on the economy, but punctuated with uncertainty. “Construction spending is improving with some fits and starts,” Yengst said. “Housing starts are up some months and down others. Nonresidential construction spending is creeping upward, as is public construction spending. But from month to month, none of these indices are consistent.”
Construction spending in general is growing. For the first seven months of 2016, U.S. construction spending was $647.7 billion, up 5.6 percent from the same period in 2015, according to the U.S. Census Bureau. Yengst said the mining sector “is still gasping for air” while sales of large agricultural equipment are “in the tank.” Equipment rental revenue should be up around 5 percent for 2016, but capital spending at bellwether rental companies is expected to decline for 2016, he said.
There is some hope Congress will provide the needed funding for the federal highway bill, to start addressing the dire condition of U.S. infrastructure. “We’re neither seeing a lot of spending for highways and streets,” Yengst said, “nor are we fixing those potholes we keep hitting or repairing our rusting bridges.”
Yengst forecasts a 5.1 percent decline in sales of earthmoving equipment for 2016, followed by a 5.3 percent increase in 2017. He sees a 3.1 percent decline in production for 2016, followed by a 4 percent increase in 2017.
Frank Manfredi, another industry observer, said much of the uncertainty is due to the upcoming presidential election. “The political atmosphere currently dominates the market,” Manfredi wrote in the same issue of Diesel Progress, “and that is causing people — especially equipment buyers — to consider alternatives to purchases, such as renting or searching auctions for low-hour bargains.”
The downturn in the energy sector has led to a glut of used equipment flooding the market and pushing down prices, said Manfredi, president of Manfredi & Associates. Meanwhile, federal emissions regulations have caused new-equipment prices to rise and margins on sales to be squeezed.
Manfredi sounds a dourer tone than Yengst, forecasting a sales decline for construction equipment in 2016. “Overall I expect the market in 2016 will decline by slightly less than 10 percent,” Manfredi said. “The largest decline, roughly 15.9 percent, will occur with hydraulic excavators that are used extensively in oil and gas operations.”
Manfredi forecasts modest declines in sales of excavators and wheel loaders in 2017, with a much steeper decline in sale of crawler tractors. One encouraging sign, he noted, is the increasing machine utilization recorded by equipment telematics. “When machine usage increases enough — and we don’t know what that level will be — users will begin purchasing machines again, which will drive up retail sales.”