Dive Brief:
- Hinting at the possibility of a coming economic downturn, year-over-year domestic heavy-truck sales fell 29% in August, reaching the lowest figure in more than three years, according to a Bloomberg report on Bureau of Economic Analysis data.
- Compounding the decline in sales is the fact that Caterpillar reported a year-over-year, 10% decrease in used-equipment prices, which could result in further losses in new-equipment sales. The Cass Freight Index, which measures North American freight activity, was also down more than 6% for the year.
- Adding to the argument that the plunge in sales is not just a one-off occurrence is the fact that truck sales have been declining for the last few years. According to Bloomberg columnist David Ader, he has never seen such a hefty drop in prices that did not foreshadow a recession.
Dive Insight:
Despite these indicators, some economists have said this downward momentum could be a result of temporary market conditions, like the drop in domestic oil production and mining activity, or increased regulations that require new truck safety features.
The ups and downs of large equipment manufacturers like Caterpillar are considered bellwethers of future economic activity for the country's economy as a whole. Caterpillar has seen its sales slide for the last few years, and the construction equipment giant said last its drop in 2016 revenue represented the first time the company had ever experienced four straight years of revenue loss. However, Caterpillar maintained that its slipping sales numbers were not a result of an overall economic slowdown, but were instead attributable to slowdowns in China and Brazil and the cyclical nature of many of the industries the company services, including mining, oil and gas, construction and rail.
In response to decreased demand for its equipment, Caterpillar implemented a $1.5 billion cost-cutting plan last year, which included laying off 10,000 employees and facility closings. Since that announcement, the company has closed more plants and laid off more employees than anticipated in reaction to the market. In its latest downsizing efforts, it laid off 300 employees working near its Peoria, IL, headquarters and announced its tentative plans to terminate thousands of foreign workers and shut down production in Northern Ireland and Belgium.