AEM Survey Reinforces Continued Industry Slump

Construction equipment manufacturers expect overall industry business to turn around slightly in 2010 following double-digit expected year-end 2009 declines, according to the annual “outlook” survey of the Association of Equipment Manufacturers (AEM). Survey respondents anticipate stronger growth going into 2011, but not enough to erase the severe 2009 business and job losses. Business in 2012 is then expected to level off.

"Even with a modest rebound in the next few years, the construction equipment industry will still be down by double digits, and there will still be double-digit industry unemployment," stated AEM President Dennis Slater. Declines were in the minus-40-percent range for the United States, and minus-30-percent range for Canada and other worldwide sectors.

"This is not surprising,” Slater continued, "given the continued instability of the housing market, and no long-term commitment to America's roads, rail, airports, water distribution and ports to move people and goods efficiently and safely, and to compete effectively in the global marketplace."

Construction machinery business in the United States was predicted to end 2009 with a 43-percent overall drop and then increase 5 percent in 2010, followed by gains of 15 percent in 2011 and 14 percent in 2012. For Canada, 2009 business was anticipated to decrease 34-percent overall with a 2010 increase of 7 percent, 14-percent increase in 2011 and 11-percent increase in 2012. Industry business to the rest of the world was expected to close out 2009 with losses of 34 percent, followed by a 2010 gain of 7 percent and growth of 13 percent in 2011 and again in 2012.

Factors affecting growth

There were no surprises on key factors that survey respondents believe will influence construction equipment sales, such as the state of the overall economy, including credit availability, interest rates and consumer confidence levels. Housing starts and highway funding levels will also play a major role in any business rebound. Other major factors are the strength of the U.S. dollar and international business, since the industry is export-intensive.

Slater provided some perspective. "These numbers illustrate the continuing slump in construction equipment manufacturing, and they reinforce the need for our nation's leaders to enact policies that contribute to a vital manufacturing sector overall, not just construction."

Global business will be a key to the industry's turnaround, said Slater, and policies that enhance competitiveness in world markets are needed. “For example, we still have pending free-trade agreements (FTAs) with South Korea, Panama and Colombia. These agreements would help open overseas markets to U.S. exporters and investors,” he said. In contrast to the U.S., the European Union is joining East Asian and Latin American countries in negotiating dozens of FTAs, said Slater. “Our failure to pursue FTAs could very well cost U.S. manufacturers much needed competitive advantages by keeping the playing field tilted in favor of our competitors.

Emerging markets in the past have been very positive for construction equipment sales, he said, adding that China and India continue to be strong markets because they are committed to building up their infrastructure to compete on the world stage.

New Transportation Funding a Must

Slater also discussed the severe negative impact of stalled federal transportation legislation. "Especially critical for the construction equipment industry is timely passage of multi-year federal transportation legislation. The stimulus package of last year, and even the 'jobs bill' being touted now, are short-term fixes and don't tackle the underlying problem,” he said. “A fully-funded, long-term bill will significantly increase highway and transit investment and result in real and long-lasting stimulus."

Slater stressed that without longer-term funding, state and local governments can't adequately plan projects, and it becomes difficult for equipment customers to make capital investments without the certainty of long- term funding. “U.S. competitiveness against other nations is also at stake,” he said. “It is much more difficult, expensive, and time consuming to get products to market without a well maintained system of highways, roads, bridges, waterways, ports, etc.”

AEM along with AED, the Associated Equipment Distributors, initiated the Start Us Up USA campaign last year to call attention to the fact that while the country was in a recession, the construction industry was in a depression, with one of the highest jobless rates. The group commissioned a study which documented that two out of every 25 jobs lost in this 'great recession' can be traced to the downturn in the construction equipment sector.

“We're continuing to educate lawmakers about the need to act on a multi-year 'highway bill' and other initiatives that will spur economic growth and create jobs and get our industry back to work. We urge all industry professionals to join in and let their legislators know that inaction is unacceptable," said Slater.