For the purpose of this article, we are looking at North American production of agricultural machinery, construction equipment and industrial products. All these segments are projected to be much better in terms of production when comparing this year to last year.
The U.S. GDP dropped 3.5% in 2020, which was the worst performance in over 70 years. The U.S. economy is set for a strong recovery in 2021 after coming out of the worst of the COVID-19 pandemic. Overall global economic recovery has led to an increase in off-highway equipment demand, which started in the fourth quarter of 2020.
Another positive note for off-highway equipment production in 2021 is that manufacturing trends present some growth opportunities, including sustainable and environmentally friendly production methods and sourcing. Favorable demand and agile decision making further support these trends.
As economic conditions continue to improve, Power Systems Research (PSR) expects an increase in market demand for off-highway products. If projected trends are favorable, PSR forecasts that production volumes in North America could reach or surpass pre-pandemic levels of 2019 by 2022.
PSR expects 2021 production to increase 9.5% compared to 2020, which declined by 11%. Additionally, it forecasts 2022 production to be 12% higher than 2021.
Supply and demand are the main price drivers in agricultural markets, more so than any other commodity markets. Soybeans and corn are the two most planted crops in the United States, accounting for 55% of the principal corn acreage.
China, as a major buyer of ag products, has been buying soybeans and corn at near record amounts, which helps lift prices. This healthy demand should continue. Short supply levels are also raising prices.
With a positive agriculture market, equipment demand is increasing. This year, PSR is projecting ag machinery production in North America to increase 9.8% from 2020 levels. Additional production growth is projected at 13% for 2022.
The agricultural segment has weathered the pandemic better than some other sectors and is well positioned to continue to grow over the next few years. By 2022, production levels will have reached levels last seen in 2018.
PSR expects the construction equipment market to follow strong economic recovery patterns. Housing starts regained ground in the second quarter of this year, and demand remains very strong, mainly due to a lack of inventory.
These conditions will drive demand for new equipment. At the same time, high levels of current and future infrastructure spending, leading drivers for the segment, generate growth projections for the segment that are quite favorable.
Washington has passed legislation, which includes a future comprehensive infrastructure bill that is committed to support the demand in the market by investing heavily in infrastructure and green technology. This will serve as a catalyst for the electrification of equipment and will create substantial opportunities in this segment that are fully supported by government funding and subsidies.
PSR's most recent overall projection for production of North American construction equipment is positive at 8.9% in 2021 versus 2020. It is forecasting additional growth of 9.7% in 2022. PSR anticipates this recovery and growth to continue as we move farther way from the effects of the COVID-19 pandemic.
In this segment, PSR is tracking products such as aerial lifts, cranes, forklifts, oil field equipment, rough terrain forklifts, scrubbers and sweepers, and terminal tractors, among others. Industrial products follow a similar trend to that of construction equipment.
As with agricultural machinery and construction equipment, PSR expects the rebalancing of distribution of market shares and supply chains. Growth dynamics closely mirror the construction segment. The main drivers for industrial products are material handling and forklift applications, where the demand remains strong. Material handling is supported by stronger levels of freight, and PSR expects this to continue into 2022.
Currently, PSR expects overall growth in the industrial segment production numbers of 9.6% in 2021 versus 2020 with further growth of 12.4% in 2022.
Increased demand for off-highway equipment is generating healthy order books; however, the supply side is not always keeping up with demand.
PSR expects as the pandemic recovery continues some of the supply chain issues will diminish. As vaccinations increase and other mitigation efforts are kept in focus, this should help depress the impact of the new Delta variant (the latest strain of COVID) this year and into 2022.
This article was written and contributed by Jim Downey, Vice President-Global Data Products, Power Systems Research