Bernstein: US machinery industry diverges as heavy-duty truck production accelerates and farm equipment demand weakens

Why is heavy-duty truck production accelerating, and what has changed with orders?

North American Class 8 heavy-duty truck production reached 26701 vehicles in September, up 77% year on year, above August's 72%; it rose 4% month on month, also better than the historical median decline of 2% for the same period. Retail sales rose 25% year on year, accelerating from 5% the previous month.
As production accelerated, new orders cooled: net orders in September were approximately 19.2 thousand vehicles, down 7% year on year, compared with growth of 32% in August; the order backlog was still up 86% year on year, but fell 5% from the previous month.
Freight indicators continued to improve. The Internet Truckstop Market Demand Index rose approximately 55% year on year in October, but fell 5% month on month; in early November, the DAT spot freight rate reached 3.14 dollars, up approximately 48% year on year.

In September, US construction backlogs rose 2% year on year after being flat the previous month. Commercial and heavy industrial backlogs grew approximately 6%–7%, while infrastructure backlogs remained down 1%, although the decline narrowed from 11% the previous month.
Data centers and power projects were bright spots: private data center construction spending rose 90% year on year in September, while private power construction spending rose 12%; private manufacturing construction spending fell 18% over the same period.
Broader construction indicators remained under pressure. The value of new nonresidential construction starts rose approximately 15% year on year in September, slower than approximately 30% the previous month; measured by floor area, starts fell approximately 5%. The Architecture Billings Index fell from approximately 47 in August to approximately 45 in September, below the 50 expansion threshold.

Confidence indicators in the US and Europe fell in tandem: the Purdue Ag Economy Barometer fell to 123 in September, down approximately 12 points from the previous month; Europe's CEMA Business Barometer fell to negative 31 in October, down 10 points from the previous month.
North American high-horsepower tractor sales fell approximately 16% year on year in September, a decline similar to that in August; combine harvester sales fell approximately 11%, a wider decline than the 4% recorded in August. As sales remained under pressure, North American dealers' inventories of high-horsepower tractors remained below historical levels.

Bernstein sees the macroeconomic data as generally favorable: for the top 20 economies by GDP, the growth synchronization indicator rebounded from 55% the previous month to 60% in September, and PMI growth momentum improved in most economies.
The firm believes growth in M1 money supply in major economies could support machinery sales and industrial output; its chart uses a lag of approximately three quarters. However, combined year-on-year M1 growth in the US, China and Europe has slowed from 9% in August to 8% in September.