Is an Equipment Buying Boom Coming? OEMs Express Elevated Optimism

Marcia Gruver Doyle Pix
Excavator in dirt

OEM respondents to the Association of Equipment Manufacturers’ Q1 survey are showing elevated optimism about the year ahead.

“Based on the qualitative perceptions of our members, given by what we’ve been through last year, I could say we’re solidly in the boom period in our industries,” says Benjamin Duyck, AEM’s director of market intelligence.

Each quarter, AEM asks its manufacturer members to assess market demand, with questions about new orders, production, work backlog and inventories, among other things. Respondents give their perceptions of  equipment demand year-over-year and quarter-over-quarter and how they expect demand to evolve over the next 12 months.

While detailed survey results are only available to AEM members, Duyck was able to give Equipment World a quick snapshot of what AEM members are saying. And what they are saying is solidly in the positive quadrant.

“The last time we saw this strong of a movement into the positive sector was after the 2016 election,” Duyck says. “The index is at the highest level since 1997.”

“These are perceptions that usually proceed the actual market by six to nine months,” he adds.

AEM charts those answers as a net rising index (NRI), which deducts the negative answers from positive answers. “This charts the strength of the consensus on the direction,” Duyck explains.

The NRI for demand for planning (in which members describe the outlook underpinning their business plans for the next 12 months) reached 75.5, says Duyck, up from 23 in the previous quarter. More than 52% of respondents expect normal growth, while 25.6% expect above normal growth. Only 2.2% expect a recession in 2021.

“Throughout 2020,” Duyck says, “it appeared that contractors were delaying their purchases due to lower levels of business confidence, but now it seems they’re in need of new equipment.“

The optimism is not specific by type of machine, either. “Compared to the same period last year, members are showing optimism for every machine category.” Growth expectations range from 1% to 15%, depending on machine type.

About half of respondents have indicated that inventory levels are too low today, with another 40% saying they are about right.

The optimism is even higher in the components/attachments sector. “There is massive consensus amongst component and attachment OEMs toward growth,” Duyck says. “Close to 90% said that new orders and work backlog was increasing, and 80% are seeing increases in production. And no one said any category was decreasing.”

“On one hand," he adds, "they’re experiencing increased OEM demand, but on the other hand, they have to face procurement issues for raw materials."

“I think everyone in 2020 was surprised by the resilience of the construction industry and how residential construction supported the industry,” Duyck continues. “With consumers the primary beneficiary of the government stimulus spending, we have a very strong housing demand that causes a lot of optimism.”

The uncertainty over the presidential election was also a key factor, says Duyck. “It wasn’t necessarily one candidate over another, it was not knowing which direction things would go.” 

And the proposed infrastructure bill is also a cause for optimism, although its final form is uncertain.  

But material shortages and supply chains are deep concerns. “Almost every comment we’ve received mentions supply chain issues in one shape or another,” Duyck says. Increases in steel and shipping prices are also causing industry headaches.

As a result, AEM will include more questions in its quarterly surveys that will get more specific about supply chain issues.

AEM members wanting a full copy of the report and/or wanting to participate in the next survey should email Duyck at bduyck@aem.org.