Economic Outlook

While there’s no reason to expect the ag and construction sectors – and the overall economy – to experience downturns in the coming months, it seems safe to say growth has plateaued.

The United States is in the midst of well over 100 months of economic expansion – the second-longest-lasting period of expansion in the nation’s history. Barring unforeseen circumstances, the longest expansionary period in the history of the nation is an inevitability. And while there’s no real reason for AEM Director of Market Intelligence Benjamin Duyck to suggest a recession is imminent, it seems clear to him the U.S. and global economy are due for a slowdown sometime soon.

“We actually entered 2019 quite strong,” said Duyck, who presented at AEM’s Thinking Forward event in Chicago early last month. “There’s high business confidence, high consumer confidence, and unemployment is at a historical low. But we do have rising interest rates, and unemployment is so low it’s creating labor constraints. There’s obviously a slowdown coming – maybe 2020?”

Overall Economic Outlook

A number of economic indicators suggest a slowdown should be expected, said Duyck. Trade policy poses a tremendous risk toward the global gross domestic product (GDP), and it’s overtaking financial and economic risk. According to the Confidence Report, global GDP is forecast at 3.1 percent or 3.2 percent for 2019, or roughly the same as 2018.

Meanwhile, in terms of the U.S., tax reform has benefited the economy in the short term. However, according to Duyck, unfortunately those benefits have been undermined by recently implemented tariffs.

Also of significant note is rising interest rates.

“The Federal Reserve is tasked with guiding the economy and protecting it from overheating,” said Duyck. “Raising interest rates is the Fed’s main weapon when there is a recession, because then they can lower them again.”

Agriculture Outlook

The ag industry saw significant growth for several years leading up to 2013 or 2014, primarily driven by an uptick in farmland values. However, as commodity prices increased, so did production. And when that occurs, said Duyck, prices have nowhere to go but down.

"The question we always hear is 'When are commodity prices coming back up so farm income can as well?'" he continued. “Well, what we’ve seen with this ag downturn is it’s actually the end result of a bubble, and it’s unrealistic to expect (commodity prices to really shoot back up).”

Nevertheless, farm income is expected to climb 10 percent in 2019 (on the heels of 8 percent growth in 2018).

"When we look at the health of the U.S. farmer, we look at assets versus debt,” explained Duyck. “That ratio has been historically low for a long time. But it’s been slowly inching up 1 or 2 percent a year. The amount of working capital a farmer has this year is about 25 percent less than last year. There’s less money to buy new equipment, and the risk for solvency for farms is the highest it’s been since 2002. All that being said, we’re still at fairly low levels of debt-to-asset ratios. That puts farming in a fairly stable situation.”

Some survey respondents are optimistic, but most feel the market is being held back by political and trade turbulence. And while AEM members are still reporting equipment sales growth, they are much closer to zero than in the past, and optimism for the future is waning a bit. 

Check out AEM's Thinking Forward podcast to learn more about how disruptive tech trends are impacting the industry. 

Construction Outlook

Steady and solid growth is expected in the construction industry, at least in the near term. Increases of 1.1 percent in 2017 and 1.9 percent in 2018 were significant, and the industry is expected to see 1 percent growth annually over the course of the next five years. Of course, this does not take into consideration unforeseen circumstances. 

“Most of this growth is being driven by residential, and we’ve seen double-digit growth over the course of the last seven years,” said Duyck. "With rising interest rates and construction costs, we expect this market to cool."

Non-residential construction growth increased only slightly in 2018, on the heels of tremendous growth in the years prior to 2017 in manufacturing and commercial. And, while the overall construction industry is poised for sustained success, most of the expected growth will be driven by residential construction.

Impact of Tariffs

AEM released an IHS Markit report in March to help shed light on the impact of tariffs on U.S. markets. According to the report, the tariffs will cost suppress U.S. jobs gains by 260,000 and lead to equipment price increases of 5-7 percent over the course of the next decade.

"Obviously, these tariffs have a strong effect on our industries – manufacturing, ag and construction,” said Duyck. “In a way, our industries are especially affected, because on the ag side, when the price of steel goes up, a piece of equipment becomes more expensive. But then we have retaliatory tariffs on soybeans, which has a negative effect on farm income. Not only does it become more expensive to produce equipment, and we can export less of it, the U.S. farmer has less money to buy it.”

The Bottom Line

2019 looks quite solid, but economic growth in the U.S. is poised to slow as soon as next year. And while a number of factors – business confidence, consumer confidence and low unemployment, to name a few – are driving growth in the short term, the impact of other factors (such as tariffs and higher interest rates) can’t be overlooked or discounted.

For more information on AEM’s Thinking Forward membership events, please contact Paul Flemming, at or visit

Subscribe to the AEM Industry Advisor for more AEM news and updates.