Especially as this jaw-dropping presidential campaign enters its final two weeks, it’s important to remember that to a great (and probably predominant) extent, the U.S. economy rises and falls independent of election results and politicians’ decisions. One recent non-political sign that something of an inflection point is nearing could be coming from Caterpillar, the U.S. manufacturing giant that’s the world’s biggest maker of mining and construction equipment.
I was skeptical in early 2010 when The Wall Street Journal reported that then Caterpillar CEO Jim Owens had decided that the American and global economies had started to stabilize after the Great Recession, and that the company needed to restock it shelves in order to prepare for an impending return to growth. As a result, explained Journal correspondent Timothy Aeppel, Caterpillar was ramping up orders throughout its enormous national and international supply chain. In tandem with similar decisions by other big manufacturers, Caterpillar’s move was likely to spark a big surge in industrial output that could create a much broader virtuous growth circle and put a nascent economic recovery on solid ground.
As it turned out, I was wrong and Aeppel was right. From that point on, inflation-adjusted American manufacturing production – which had cratered during the recession – rebounded by 14.20 percent through this past January, when it hit its most recent peak. And nearly two-thirds of that growth took place in the two years following the article.
Fast forward to last week. Here’s how the Journal (in an article by a different reporter) then described Caterpillar’s situation:
“Doug Oberhelman spent his first years as Caterpillar Inc.’s chief executive plowing billions of dollars into factories to build more of its familiar yellow machines and move the company deeper into mining equipment.
“It was a bold bet, spectacularly mistimed. On Monday, Mr. Oberhelman [who had helped Owens plan the rebound six years ago] announced plans to step down as chief executive by year’s end.
“[W]hen he took charge [in mid-2010], the world was gripped by a global commodities boom, along with strong postrecession demand from developing markets and the energy industry. The world was ordering excavators and bulldozers and giant dump trucks at a rapid clip.”
And indeed this week, when announcing its third quarter financial results, Caterpillar not only reported significantly declining revenues, but changed its predictions for 2016 by forecasting that this year would be its fourth straight of falling sales. Perhaps worst of all, the company said next year will bring more of the same. The reasons?
“Executives pointed to persistent weak demand for its construction, mining and oil equipment around the world amid a continued slump in commodities prices, idle locomotives and trucks and a glut of used machines.”
Something they didn’t mention. In 2010, the United States enjoyed a $7.595 billion trade surplus in construction equipment. By 2014, it was running a deficit of nearly $992 million, and the shortfall is on a $5 billion pace this year. In mining machinery and equipment, the numbers are better in absolute terms, but deteriorating sharply as well. Whereas the trade surplus in 2010 was $2.069 billion, it’s unlikely to top $600 million for 2016.
Oberhelman told investors that “We’ve been through an awful, rough period the last four years. But I do think we’re set up for the future.” Given his performance as an economist, though, it looks like America had better not count on Caterpillar – or the rest of its manufacturing sector – to be powering much growth for the time being.