Agricultural and Construction Equipment Market Outlook: Is the Long-Term Growth Sustainable?

As the global economy remains firmly on track to grow in 2022, a number of challenges are poised to pose obstacles for the Agriculture and construction equipment industries in the weeks and months to come.

According to the last business intelligence According to WEA data, the global economy grew robustly by 5.1% in 2021. And although projected growth of around 3.9% is expected for 2022, a slowdown in growth seems be a fatality. Short-term factors like the ongoing COVID-19 pandemic, ongoing supply chain issues, and persistent labor shortages, as well as long-term factors like deglobalization and inflation, are emerged to dampen some of the enthusiasm in the wake of what has been a strong global economic resurgence.

“The last recession we experienced ended the longest period of economic expansion in the United States, and this recession lasted from February 2020 to April 2020,” said Benjamin Duyck, director of AEM Market Intelligence. “Two months, in traditional economic terms, cannot even be accurately described as a recession. However, this economic disruption hit us all hard, and we are still dealing with the aftermath today – labor shortages, supply chain issues and higher interest rates.

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Continued growth on the horizon

The question of when the next economic recession will hit is an easy question to ask, but not so easy to answer. Recent Stock Market Volatility did little to allay concerns. However, the stock market is still up 20% from a year ago and 30% from two years ago (just before the COVID-19 pandemic started).

“Can we accurately predict the next recession? asked Duyck. “No, and it’s a running joke that economists have correctly predicted 15 of the last 10 recessions. In other words, they are often wrong and pessimistic. However, it will be interesting to see what happens, especially with high inflation. »

AEM has surveyed its members quarterly for nearly two years on how quickly they expect to return to pre-COVID-19 levels. For some time, the responses were generally quite positive, according to Duyck.

“But this past quarter’s data is moving the other way again, largely due to the headwinds we’re facing with inflation, labor issues and supply chain disruptions. supply,” he said.

Mitigating factors

When it comes to farm equipment, the impact of inflation cannot be underestimated. There was an 11.7% year-over-year increase in farm machinery prices. On the construction side, inflation is a little lower, but it is gradually picking up, with an increase of 9.7% in the last quarter.

Talent acquisition is also an important – and troublesome – factor for manufacturers of agricultural and construction equipment. According to the results of the latest quarterly survey of AEM members, hiring in the manufacturing sector remains a major problem: 84% of all respondents encountered problems in this particular area, while 90% of all agricultural members interviewed addressed this particular issue.

Respondents offered a wide range of potential strategies and tactics to address hiring challenges – internships, educational partnerships, higher wages, bonuses, marketing and recruiting efforts, flexible hoursand outsourcing, are some of the most common – but it’s clear that labor will remain a prevalent issue for equipment manufacturers for the foreseeable future.

What’s equally clear are the factors that led to the supply chain issues currently plaguing agricultural and construction equipment manufacturers, according to Duyck.

“Ultimately, the supply-demand imbalance and COVID-19 restrictions have wiped out all the inventory and fat that keeps the global supply clock ticking. Another striking metaphor perhaps closer to our industries is this: we are running a machine that consumes little oil, and is almost out of it. The machine will continue to run, and maybe even run for some time. , until it no longer works. — Benjamin DuyckDirector of Market Intelligence AEM

“COVID-19, followed by an increasing number of employees leaving the workforce, has resulted in both closures and product shortages,” he added.

As a result, and in response, the supply chain planned to initially adjust production downwards, expecting lower demand. In addition, shipping companies have reduced their schedules, expecting a drop in demand for shipments. And while demand in some aspects of the economy has fallen, the decline has not been evenly distributed across industries and workers.

As people continued to spend money on homes and consumer purchases, interest rates remained low and the United States experienced an expansion in the money supply. In addition, workers and businesses have been supported by the government. All of this, combined with product scarcity and increased demand, leads to inflation, which negatively impacts supply chains.

Eventually, product scarcity and increased demand led to inflation in the supply chain – and factories could not expand easily due to bottlenecks in the chain caused by both by low production and the global nature of production. Now, due to over-demand, it is very difficult for suppliers to understand the true demand for their products.

“We can see it in our industries, not just OEMs and component manufacturers, but also OEM end users,” Duyck said. “That, in short, is why we have supply chain issues. Labor, supply chain and all of this is intertwined and the results of policies and actions from decades in the works triggered by COVID-19.

WEA Member Perspectives

According to AEM’s latest quarterly member survey, more than 95% of agricultural and construction equipment manufacturers who responded said they had supply chain issues. However, it appears that either demand is starting to normalize or supply chain signaling is improving, as 44% of respondents noted that issues are starting to pick up.

“For the vast majority of these people, the issues are both national and global,” Duyck said. “Problems are also widespread, but the consensus opinion among members is that the problems lie particularly in the prices, shipping and quantities of raw materials and, subsequently, inputs and components. Moreover, the problems are not necessarily at the end point or receipt of the shipment, but rather at the source of the supplier – and in particular with international shipping.

Many AEM member respondents indicated that supply chain issues caused them to fall behind, despite continued growth, which could eventually lead to changes in inventory management. According to Duyck, the third quarter of 2021 saw inventory levels rise between 15 and 20% in the agriculture and construction segments, with agriculture seeing a further jump of 15% in the fourth quarter of the year. last.

“It’s not yet clear if any changes in inventory management will actually take place, but it’s entirely possible that higher inventory levels will become more frequent for some time,” Duyck said.

However, despite all the challenges affecting the agriculture and construction equipment industries, growth is still expected (albeit at a slower pace than in recent months).

Agricultural and Construction Equipment Market Outlook

For the construction machinery market:

• The value of the construction industry is expected to grow by 4.5% this year, largely driven by residential.
• WEA member perceptions show strong demand (83% see year-over-year growth ahead), and it’s reasonable to expect 6-10% growth over the next 12 coming months, after growth of 6 to 10% stronger than expected in 2021 .
• Infrastructure spending is set to grow in the coming years.
• Uncertainty related to the COVID-19 pandemic, high material costs and monetary policy remain concerns.

For the agricultural equipment market:

• Farm income has increased despite declining government support and rising production costs.
• Member expectations remain high (81% expect year-over-year growth and 91% expect growth to continue).
• Stocks are too long after running out in 2021.

“Ultimately, the supply-demand imbalance and COVID-19 restrictions have wiped out all the inventory and fat that keeps the global supply clock running,” Duyck said. “Another metaphor that perhaps relates more to our industries is the following: we operate a machine that consumes little oil, and that has almost nothing left. The machine will continue to work, and maybe even work for a while, until it stops working.

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