Diesel Progress North America

TRENDLINES
CHARLES YENGST
www.yengstassociates.com — cyengst@yengstassociates.com

Uncertainty Remains Issue
For Machinery Industries

CHARLES R. YENGST IS
PRESIDENT OF
YENGST ASSOCIATES,
WILTON, CONN.

While the rest of the world moves along, the U.S. gov- ernment sits like a big frog on a lily pad, waiting for something — direction and leadership, perhaps — to come along. Meanwhile, companies are trying desperately to plan ahead, make investments, and do what good companies usually do. They can’t really move forward because the slow growth of the economy, the uncertainties of higher taxes, an ever-growing national debt and serious government spending issues have them hesitant to commit to any significant action.

On the brighter side, it is good to see housing moving forward. Housing starts are finally moving in a positive direction and have reached a level in the 900,000 annual range that begins to look like old times. Most industry observers used to think that 900,000 starts was the lower end of normal for the housing construction business. But that was before 2008, when we plummeted to the 500,000 level. At least we’re beyond that for a while.

The concept of “flipping” houses has
been seen again. Yes, the terms are be-
ing advertised on the Internet and a few
articles have come forth about investors
buying houses in foreclosure or those
bogged down with higher debt than real
estate value and flipping them to new
buyers using low interest rates and
somewhat more friendly lending avail-
able from banks. Hey, whatever it takes
to get business going again. It’s prob-
ably better than nothing, even if many
of us disapprove of the methods and the
idea that banks are falling back into their
old ways to make a buck.

There is too much uncertainty in the marketplace and it is costing everyone from the buyers of equipment to those that make and sell it. I am not expecting business to drop into a big crack unless the government forces a recession through fiscal maneuvering, but I believe first half sales for the year will be 10 to 15% below what we had in 2012 for the same period. Second half sales will be stronger, but probably not enough to make up for the lost ground in the first half.

Overall, I am still expecting to see a drop in sales of 6 to 8% in 2013, depending on the product. As always, there will be some exceptions.

I know that some people are expecting sales to be better in 2013, but I am still looking at it on the negative side for now. In mining machinery, sales may moderate from the past year or so, but I do not look for any serious fallback to occur unless, again, there is some unexpected action from Washington.

In agricultural equipment, I am looking for higher sales for tractors and combines than in 2012, although any increases will likely be moderate since commodity prices are holding up very well.

Buyers, including the rental equipment industry leaders, are becoming a little more cautious with their capital expenditures. I see contractors holding back until the level of construction activity is more apparent. Housing will lead the way in the construction market, whereas commercial building construction will languish and most public construction will remain slow. Highway spending will be about equal to the last two years, so no real growth there. Only higher gas taxes and a lot more funding from the states and federal government will get us on track with highways, bridges or mass transit.