Economic data indicates an approaching low for the U.S. industrial sector. On the construction machinery front, struggles suggest weakness ahead for new orders, with equipment rentals likely growing in popularity relative to equipment purchases.
Industry-leading economic firm ITR Economics provides heavy-duty equipment market trends to help OEMs stay up to date on top industry information and insights, which can help them make better decisions during 2023.
In our continued analysis, this month’s data indicates an approaching low for the U.S. industrial sector. On the construction machinery front, higher interest rates, waning corporate profitability and housing market struggles suggest weakness ahead for new orders, with equipment rentals likely growing in popularity relative to equipment purchases.
The following provides a summary of key observations across 13 indicators and areas of industry that contribute to today's global economic conditions.
The monthly rate-of-change for the US OECD Leading Indicator rose in June.
The monthly rate-of-change’s December 2022 low signals a possible late-2023 business cycle low for the US industrial sector. However, the preponderance of evidence suggests a later low is more likely. This evidence includes excess inventory of durable goods relative to sales, rapid (though uneven) supply chain loosening, interest rate movements, and money supply tightening.
Four Big European Nations Leading Indicator
The Four Big European Nations Leading Indicator monthly rate-of-change moved higher in June, though the monthly Indicator value edged lower.
Growth in Europe faces headwinds in the form of prolonged elevated inflation and rising interest rates; decline in regional industrial activity is likely to extend into at least next year.
US Construction Machinery New Orders
The most recent 12 months of US Construction Machinery New Orders came in at a record-high $47.4 billion, a 13.2% increase from the year-ago level.
Higher interest rates, waning corporate profitability, and housing market struggles portend weakness ahead for New Orders, with equipment rentals likely growing in popularity relative to equipment purchases.
US Mining & Oil Field Machinery Production Index
Annual US Mining and Oil Field Machinery Production ticked down slightly in June but was 6.3% higher than the year-ago level.
Decline will likely persist in the coming quarters, but it will likely be mild relative to historical downturns due in part to elevated oil prices (provided that OPEC+ continues to cut output as economic momentum wanes).
US Industrial Production
US Industrial Production in the second quarter was roughly even with levels from the second quarter of 2022. The quarterly average is moving lower.
Hawkish behavior by the Fed supports our expectation for further decline as interest rates climb. Continued downward movement in the US Total Industry Capacity Utilization Rate also supports probable further decline for Production.
US Farm Machinery & Equipment Shipments
Annual US Farm Machinery and Equipment Shipments in May were 12.3% below the year-ago level; the severity of contraction is increasing.
Volatile food commodity prices and elevated interest rates could hamper demand for farm equipment
US Heavy-Duty Truck Production
Average US Heavy-Duty Truck Production in the 12 months through June was 13.4% above the year-ago level. Growth is slowing.
Truckload pricing is sharply declining as truck tonnage moves mildly lower, suggesting lower demand; expect headwinds in this industry to extend into next year.
US Defense Capital Goods New Orders
US Defense Capital Goods New Orders in the 12 months through May totaled $167.5 billion, 19.6% above the year-ago level.
Ongoing conflict in Europe will continue to buoy New Orders in at least the coming quarters.
US Private Nonresidential New Construction
US Private Nonresidential New Construction in the three months through May rose to $160.9 billion, up 20.2% from the same period one year ago. Growth in quarterly Construction is starting to slow.
Rising interest rates will hamper demand for new construction starting next year; prepare accordingly.
US Total Public Construction
US Total Public Construction in the 12 months through May came in at $391.2 billion, 8.9% above the same period one year ago. Growth is accelerating.
Annual Construction is expected to follow an upward trajectory, bolstered by funding from the federal infrastructure package. Look to opportunities in areas like water/wastewater and transportation.
US Mining Production
US Mining Production growth is slowing. The June annual average was 6.7% above the year-ago level.
General decline in the US Mining Capacity Utilization Rate monthly rate-of-change supports our outlook for further slowing growth for annual Production during at least the coming quarters.
Germany Industrial Production
Germany Industrial Production in the three months through May was at 0.3% below the same three months one year earlier.
While the auto industry is recovering at a double-digit clip from the supply chain woes of the pandemic, a number of more B2B-focused industries, like machinery and chemicals, are declining.
Europe Agricultural & Forestry Machinery Production
Annual Europe Agricultural and Forestry Machinery Production was at 11.3% above the year-ago level in May, reaching record highs.
This industry may contend with downward pressure stemming from high interest rates moving into 2024.