Editors note: Data for the report was gathered prior to the Russian invasion of Ukraine.
Although the global economy remains firmly on track to expand in 2022, a number of challenges are poised to serve as obstacles for the construction equipment industry, according to the Association of Equipment Manufacturers (AEM).
According to the latest business intelligence data from AEM, the global economy expanded by 5.1 percent in 2021. Although growth for 2022 is projected to be about 3.9 percent, slower growth seems like a foregone conclusion.
Short-term factors such as the lingering Covid pandemic, ongoing supply chain issues, and persistent labor shortages, as well as long-term factors such as deglobalization and inflation, have emerged to dampen enthusiasm a bit.
“The last recession we experienced ended the longest period of economic expansion in the United States, and that recession lasted from February 2020 to April 2020,” said Benjamin Duyck, director of market intelligence. “Two months, in traditional economic terms, can’t even be accurately described as a recession. However, this economic disruption has impacted us all greatly, and we are still dealing with the aftereffects today: labor shortages, supply chain problems, and higher interest rates.”
Recent volatility in the stock market has done little to quell concerns, according to AEM, although the stock market is up 20 percent when compared to a year ago and 30 percent from two years ago, just prior to the onset of the pandemic.
AEM has surveyed its members quarterly for nearly two years regarding how quickly they expect to recover to pre-Covid levels. For some time, the responses had been generally quite positive, according to Duyck.
“But the data for this last quarter is moving again in the other direction, largely due to the headwinds we’re facing with inflation, workforce issues and supply chain disruptions,” he said.
Inflation on construction equipment has been rising gradually, with a 9.7 percent increase in the last quarter.
Labor is also a significant factor for future growth, according to AEM. In its most recent quarterly member survey, 84 percent of respondents have experienced issues in this particular area.
Supply chain issue are also continuing challenges. More than 95 percent of AEM members that responded said they are experiencing supply chain issues. However, it appears either demand is beginning to normalize, or supply chain signaling is improving, because 44 percent of respondents noted the issues are beginning to turn around.
“For the vast majority of these people, issues are both domestic and global,” said Duyck. “The issues are also widespread, but consensus opinion among members is that the issues lie particularly with prices, shipping, and quantities of raw materials and, subsequently, inputs and components. In addition, the issues do not necessarily lie at the endpoint or receiving shipping, but rather at the supplier source—and especially international shipping.
“Ultimately, the imbalance between supply and demand and COVID-19 restrictions eliminated all the inventory and the grease that allows the global supply clock to operate,” he said. “Another metaphor that maybe hits closer to our industries is this: We’re running a machine that’s low on oil, and almost out of it. The machine will continue to run, and maybe even run for a while – until it doesn’t.”
Construction equipment market outlook
Construction industry value is expected to grow 4.5 percent this year, largely driven by residential.
AEM member perceptions show strong demand (83 percent see year-over-year growth ahead), and it’s reasonable to expect growth of 6 percent to 10 percent over the next 12 months on the heels of 6 percent to 10 percent stronger growth than was expected in 2021.
Infrastructure spending is set to gain significant momentum in the coming years.
Uncertainty related to the COVID-19 pandemic, high material costs and monetary policy all remain concerns.
Source: AEM
