In this episode of PSR PowerTALK, Yosyf Sheremeta, PhD, Dir. of Prod. Mgt. & Customer Experience, discusses why the North American economy could post record growth of more than 6% in 2021.
Transcript
Welcome to the PSR PowerTALK podcast, produced by Power Systems Research.
00:06 Joe Delmont:
From Power systems Research I’m Joe Delmont, editor of PSR PowerTALK.
Today, we’ll discuss the economic outlook for North America. This forecast has been developed by Yosyf Sheremeta, Director of Product Management and Customer Experience at Power Systems Research. Yosyf provides our clients with economic and production forecasts each quarter. Thanks for joining us today Yosyf.
00:35 Yosyf Sheremeta:
Thanks Joe.
00:37 Joe Delmont:
In your forecast you discuss both B2B and consumer segments. Today, let’s limit our discussion to B2B segments. In your recent first quarter economic outlook for North America, you point out that the GDP dropped 3.5% in 2020 — the worst performance for the US economy in almost 75 years. But you also write that there are many reasons for optimism in 2021. What do you see?
01:09 Yosyf Sheremeta:
Our positive outlook is based on the review of the economic indicators including GDP, unemployment, and inflation. In our previous forecast, we have already discussed recovery trends for the post Pandemic period stating a return of demand for the most mark for most markets in 2021, especially during the second part of 2021.
Based on the strong economic developments during the past six months, business re-opening trends which we expect to take place over the next six months, and combined with favorable government policies, we now expect even stronger overall growth for the year 2021.
01:50 Joe Delmont:
What kind of growth are you talking about?
01:52 Yosyf Sheremeta:
Based on our analysis over the expected growth trends, we think that US growth can reach or even surpass the growth levels from back in 1984. And that was the highest growth since 1950s.
02:07 Joe Delmont:
Are you talking about record growth levels for GDP?
02:10 Yosyf Sheremeta:
Ah, yes, it’s, it’s a long stretch to reach the level of 7.2% GDP growth in the US, that US has posted in 1984. However, it’s not that far from the major economic consensus of upper 6%, at 6.8 currently, in 2021 compared to 2020.
02:31 Joe Delmont:
When you talk about this level of growth, are you considering the possible impact of President Biden’s proposed stimulus plan?
02:40 Yosyf Sheremeta:
Yes, with the additional stimulus support provided by the American Rescue Plan Act of 2021, U.S. economic growth could rival China’s growth for the first time in, in decades.
02:53 Joe Delmont:
How can that happen?
02:55 Yosyf Sheremeta:
Should the US realize the growth levels of 1984 at 7.2%, this would actually outpace Chinese forecasted growth of 6%. Should this growth pattern materialize, this would be a remarkable achievement because, you ask, economy is (a) much more mature economy.
03:16 Joe Delmont:
Yosyf, what about Biden’s infrastructure and climate programs? How will they affect the economy?
03:23 Yosyf Sheremeta:
This future proposed combined spending on infrastructure, green energy, as well as education would be in the area of between 3 and $4 trillion and would certainly serve as the catalyst to prolong growth when supported by major investments from the government.
03:40 Joe Delmont:
Power Systems Research has been following several key industry segments globally on a regional basis since 1976. Let’s take a moment and look at some of the most important B2B segments. What do you see for agriculture?
03:58 Yosyf Sheremeta:
Agricultural machinery market in the US has suffered over the past few years. The number of total ag’ equipment and machinery produced in 20…, 2014, in 2014 and 2015 years was about 250,000 units overall and by 2020 that total volume dropped to about 100 and 22,000 units. This means the market was already very low in the 2019 and 2020 and was supported mainly by the replacement rate.
However, last year the market has started the recovery and got boost from high commodity prices for key crops, corn and soybeans, which actually account for over 55% of the principal crop acreage.
04:46 Joe Delmont:
What happens if this recovery continues?
04:50 Yosyf Sheremeta:
As the economic recovery continues, we do expect the ag machinery segment to follow other industrial and heavy equipment industries. In 2021, we project the growth of agricultural equipment and machinery in North America to be at 8.9% versus 2020 levels. Additional growth is projected for 2022 at 11.9%.
05:15 Joe Delmont:
The ag sector seems to have survived the global pandemic better than most segments. Is that correct?
05:21 Yosyf Sheremeta:
Yes, the agricultural segment has weathered the pandemic better than other industrial sectors and is well positioned to continue its growth pattern in the, over the next few years. The recovery will be steady and we do expect levels of production in 2022 to reach those of 2016, 2017 years.
05:43 Joe Delmont:
8.9% is very solid growth for agriculture. Do you see, a, similar growth for construction equipment?
05:52 Yosyf Sheremeta:
We expect the construction machinery segment to follow strong economic recovery patterns as well. While the housing starts have slowed down a little bit during the first quarter of 2021, the market is still very strong and is driving the demand for construction equipment.
06:09 Joe Delmont:
Increased infrastructure spending should boost further growth in this segment.
06:15 Yosyf Sheremeta:
That’s righ. Given the high level of infrastructure spending growth projections for the segments are favorable. Furthermore, government has proposed new legislation and future comprehensive infrastructure bill would certainly support the demand in the sector by investing heavily in the green energy technology.
06:35 Joe Delmont:
Tell us more about the proposed infrastructure bill.
06:39 Yosyf Sheremeta:
Infrastructure bill will, will have a major impact on OEM equipment and machinery industries we cover. The proposed bill, at 2.3 trillion, is ,is still very far, far away from what will eventually be included in the final bill. However, right now we know the government will focus heavily on transportation infrastructure at roughly $621 billion as well as home and building infrastructure at $650 billion.
For instance, government has proposed 174 billion U.S. dollars investment in the electric vehicle market, including a national network of half a million chargers by 2030. There are, by contrast, more than 150,000 US gas stations. So 500,000 charging stations will (be) triple (the) current number of gas stations. This will definitely boost battery manufacturers as well as charging technology companies.
07:37 Joe Delmont:
How do you think the construction equipment segment will perform this year?
07:42 Yosyf Sheremeta:
Our most recent overall projection for construction equipment and machinery production is positive, at 8.2% in 2021 versus 2020, which is slightly higher than our previous forecast from last quarter. Furthermore, we expect additional growth of 8.6% in the 2022 against 2021.
08:05 Joe Delmont:
The industrial segment generally follows construction. What do you see for the industrial sector?
08:13 Yosyf Sheremeta:
This segment typically follows the general economy and the construction industry trends; with some minor equipment exceptions such as forklifts. We do expect an overall growth in production numbers at 8.2% in 2021 compared to 2020 with additional growth of 9.9% in 2022. The main drivers for the segment are small industrial equipment, material handling, and forklift applications, where the demand remains strong. Material handling is also supported by stronger levels of freight as well, and we expect this trend to continue in 2021 and 2022.
08:54 Joe Delmont:
One very important sector is the commercial vehicle segment. It seems as though rebound in the segments we have discussed previously will have major positive impact on the medium and heavy vehicles. What do you see happening in this segment?
09:11 Yosyf Sheremeta:
Since the latter part of the last year heavy commercial truck orders have been extremely strong as freight rates remain very high. Both contract rates and spot rates are currently in the record territory, primarily driven by consumer spending and strong housing markets and improving manufacturing sector. The anticipation of the stimulus spending increasing vaccination rates for the COVID-19 are also driving optimism in the economy. However, supply chain issues, particularly with regards to semiconductors, will be the biggest obstacle for the sustainable production this year.
Last year in 2020, production dropped about 32.7% versus 2019, peak year in the United States. While down significantly that final overall performance, while down, was much better than initially expected the market rebound started in a in the second part of 2020 and we do expect this trend to continue well into 2021 – 2023.
We also project a very strong growth in 2021, at 24.5% versus 2020. That will be following by, followed by 11.4% in 2022, so we will see two consecutive years of strong growth. However, the market will not return to pre decline levels for at least few years.
10:45 Joe Delmont:
Yosyf, tell us how you prepare your forecast.
10:49 Yosyf Sheremeta:
Our forecast has been developed in-house since 1980s. It incorporates proprietary algorithm which is demand driven and employs bottom-up methodology approach. We also employ a team of analysts on the ground in our worldwide network that reaches from Minnesota and Moscow to Beijing and Brazil, covering all major OEM regions and market segments.
Much of our latest data is pulled from two of the major Power Systems Research proprietary databases, OE Link and EnginLink. OE Link covers global OEM production and forecast of equipment and vehicles powered by internal combustion engine and alternative drive technologies; including battery, hybrid, fuel cells, and PTO. EnginLink, as well, covers global engine production forecasts and specification data.
11:45 Joe Delmont:
Great, you can look forward to research reports every month in PSR PowerTALK News and on this podcast several times each month.
Contact us for more information on off-road and on-highway commercial vehicles as well as many other products.
12:03
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