This series examines the state of the off-highway industry and analyzes the trends happening and what it might mean in the short- and long-term for the industry. Each installment also will dive deeper into one of the three key industries that are crucial to the off-highway industry: Agricultural, construction and mining.
The information used in this article has been prepared by Eli Lustgarten, president at ESL Consultants. He is an expert in the manufacturing and off-highway industries with more than 40 years of experience and has spoken at many events on manufacturing topics.
This series examines the state of the off-highway industry and analyzes the trends happening and what it might mean in the short- and long-term for the industry. Each installment also will dive deeper into one of the three key industries that are crucial to the off-highway industry: Agricultural, construction and mining.
The information used in this article has been prepared by Eli Lustgarten, president at ESL Consultants. He is an expert in the manufacturing and off-highway industries with more than 40 years of experience and has spoken at many events on manufacturing topics.
December 2024 manufacturing status
The industrial sector and most heavy equipment markets are facing uncertainty and have slowed things down due to weak macroeconomic fundamentals both here and abroad. Softer demand, slow declining interest rates and global conflicts has resulted in significant inventory reduction and have left many companies and industries in a holding pattern, particularly in Europe. This will likely continue through the first half of 2025.
The state of U.S. manufacturing remains in contraction according to the Institute for Supply Management (ISM), which monitors the industry’s strength with their Purchasing Manufacturers’ Index (PMI). It registered at 48.4% in November, which means the industry has been below the threshold (50) for 24 of the last 25 months.
Some of this isn’t unexpected because there had been issues with supply chain bottlenecks, inflation and overheated demand due to the COVID-19 pandemic. It was inevitable there would be a pendulum swing in the other direction.
The global economy also has been in a general holding pattern due to factors outside their control and manufacturing, while holding steady, hasn’t been able to break through the fog.
The next six months are likely to reflect continued uncertainty. In the U.S., it depends on what happens with the new administration and their actions toward government sending, especially the Inflation Reduction Act, The Chip Act and the Infrastructure Act. Will tariffs be imposed on countries like Mexico, Europe and China? If so, how will they respond and what will the effect be on the United States? Will imports and exports decline to these countries? Is inflation going to be a major problem again? What will that do?
Manufacturing production has remained steady since the COVID-19 pandemic, but political and economic concerns remain.
It’s very much like a game of Dominoes, but the problem is, it’s hard to predict where the next domino will fall because of all the geo-political variables hanging in the balance.
Hopefully, 2025 will be the mirror image of 2024 with demand and production recovering after a slow start and showing some strength in the second half of the year. Many companies and industries were in a holding pattern, particularly in the U.S., due to the election. Now that it’s over, maybe they’ll be able to breathe again.
State of the key off-highway industries
This will examine the three key off-highway industries: Agriculture, construction and mining in a general sense to see what’s happening and what the key players in these industries are doing, as well.
State of the agricultural industry
Farmer outlook remains very cautious with capital investment plans remaining weak. The decline in sales in 2023 and 2024 has brought sales down to more normal levels after the sugar rush from 2020, 2021 and 2022 due to the COVID-19 pandemic. That’s something many industries endured, but agriculture, in particular, has been affected by. It’s also problematic because the industry is being affected by rising carryovers and declining commodity prices. It also is highly dependent on good weather, particularly in milder climates. The crystal ball only goes so far. Market weakness is expected to continue in at least the first half of 2025 and it could be exacerbated by tariffs and other factors beyond the farmers’ control.
State of the construction industry
Construction spending has slowed throughout 2024, particularly in the commercial sector. Equipment sales also will decline into 2025 as inventories are liquidated, which is a continuing theme as spending continues to be an issue. The architectural index has been soft since 2022 and not showing any basis for improvement. If tariffs are imposed, the AGC believes higher tariffs will raise costs and could result in supply chain issues if other countries retaliate. Construction equipment sales decline in 2024 of 5 to 15% will likely continue into 2025.
The softer construction industry is reflected by Caterpillar. In their earnings release, 4th-quarter results in 2024 are down compared to the same period in 2023 with lower machine sales and inventory from their key suppliers and dealers. This is expected to continue into 2025.
There may be some hope for construction sectors such as infrastructure, power and data centers, but that is somewhat dependent on what happens with the new administration.
State of the mining industry
Mining markets are expected to be softer as global economic conditions remain sluggish and the slow decline in interest rates. Commodity prices also are expected to be soft and there’s great uncertainty about what the future holds. There’s been a greater push for sustainability and green energy in the mining industry, which is known for heavy CO2 emissions. While the big players are dedicated to improving their bottom line toward saving energy and lowering costs, it’s a question of how far and how hard to push, especially given the economy’s turbulence the last few years. The future is uncertain for power, green energy and electrification particularly in automobiles and it has had a negative effect on spending and new project development all over the world. This uncertainty has been exacerbated by government changes in France, Germany and Canada.
A closer look at the agricultural industry
North American farm equipment fundamentals entering 2025 remain weak, plagued by large crops rising carryovers and higher interest rates for longer causing declining commodity prices to levels driving farmers to unprofitability. Farm equipment sales have continued declining through the second half of 2024.
Original equipment manufacturers (OEMs) have sharply lowered production, and undertaken a significant inventory reduction which will continue into the first half of 2025. Significant layoffs continue to be announced by all producers including a new recent job reduction by John Deere for January 2025.
Despite the troubled outlook, farm sentiment has improved post-election as the change in administration brought optimism to the farm belt to the highest level since May 2021. The improved optimism reflects the likelihood of a more favorable regulation and tax environment for agriculture as the new administration implements its growth objectives.
The first two weeks of 2025 has contained several surprises. John Deere has announced more layoffs due to weak demand. However, the most recent WASDE report from the U.S. Department of Agriculture showed some significant revisions in the forecast for the 2024-25 crop projections. The projected corn yield was dropped 3.8 bushels to 179.3 bushels per acre, which had the effect of reducing the U.S. projected corn carryover from 1.74 billion to 1.54 billion bushels, which is only modestly above normal.
The sentiment for the agricultural industry has rebounded from a 10-year low, but concerns about input costs and prices remain high.
The projected average price of corn rose $0.15 to $4.25. Soybean projected crop also was reduced. For now, holding back better prices are record crops projected in South America. These revised suggestions suggest that the first half of 2025 could quite possibly be the bottom for the Farm Equipment industry.
For now, the farm sector has to work through the current weak fundamentals, inventory reduction and manage the possibility and impact of a tariff-induced trade war. The industry faces another year of potential double-digit sales decline, particularly in the first half of 2025. The longer-term outlook is improving and is aided by significant new technology being introduced.
For example, John Deere is in the process of introducing its largest new product program including new HHP tractors, fuel-efficient combines smart sprayers, new engines, new hydraulic pumps and automation and guidance systems. New electrical variable transmission, including hybrid, which can use diesel engine to provide electricity to drive attachments and/or drivetrains. Artificial intelligence (AI) also is being implemented by manufacturers in its technology stations.
