AEMP Equipment Management LIVE Highlights and Summary

BY GEORGIA KRAUSE

PART ONE: CHRIS KUEHL - BETTER THAN A BEST GUESS

I keep a personal list that I call People Who Know What They Are Talking About (PWKWTATA). When I’m trying to figure something out or find an answer, these are the people who have impressed me with their smarts and generosity. I find PWKWTATAs at tradeshows, while doing interviews for articles, waiting in lines at airport snack counters. PWKWTATAs always give you more than their ‘best guess’. You know people like them, too, I’d guess. These are the people that leave you feeling confident they understand your questions and offer answers you can work with. AEMP is pleased to introduce you to some of these people for your own PWKWTATA list.

ADVANCING OR RETREATING: THE RESTART BEGINS

AEMP’s leading expert speaker, Chris Kuehl, Ph.D, co-founder and managing director of Armada Corporate Intelligence, did a masterful job presenting his economic analysis of the effect Covid-19 is having on our industry at the Equipment Triangle Industry Foresight and Advocacy session during June’s Equipment Management LIVE online event.

Kuehl reminded participants that a black swan-type contagious event affecting the economy was widely believed to be highly probable, but so far the construction industry has fared better than other economic sectors during the COVID-19 pandemic.

Investopedia.com cautions that “reliance on standard forecasting tools can both fail to predict and potentially increase vulnerability to black swans by propagating risk and offering false security.” Kuehl explained that building economic forecasting models depends on accurate data, which is in short supply right now. “You can either have something fast or you can have something accurate,” he said. “You can’t have both. Right now we are getting data fast that needs to be corrected shortly thereafter.”

Kuehl puts together a monthly credit managers index polling data gathered from what he calls ‘working economists’ — those who work for banks, Fortune 500 companies, investment firms — who he feels have a more pragmatic approach to their You can either have something analysis. “Those fast or you can managers tend to think out months in advance. They have something accurate. You have told me they can’t have both. are seeing a lot CHRIS KUEHL of applications for future activity.” His credit manager index accurately has predicted expansions and retractions for more than 20 years.

Kuehl also doesn’t base his analysis on consumer confidence numbers. “When you ask consumers ‘Are you confident?’ the consumers who woke up that morning with a

CONSTRUCTION EMPLOYMENT GROWTH: MARCH 2019 V. MARCH 2020 THE CONSTRUCTION INDUSTRY

has fared better than other economic sectors during the COVID-19 pandemic.

Construction 2.2% Nonresidential 2.0%

Nonresidential Building * -0.2% Nonresidential STC 3.0% Heavy & Civil Engineering 1.3% Residential ** 2.5%

Residential Building 3.3% Residential STC 2.1% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 12 Month % Change

Source: Bureau of Labor Statistics * Includes Nonresidential Building, Nonresidential STC, and Heavy and Civil Engineering ** Includes Residential Building and Residential STC

job typically answer ‘Yes’, but those who woke up without a job answer ‘No’.

Generally, Kuehl expects a moderate recession, not as bad as the 2008-9 recession. “That one was a classic recession born in the financial sector.” He feels that this recession will last only one or two quarters, eventually resembling the first quarter of 2020.

Sectors already showing noticeable recovery are mining, gas, and oil, all of which strongly affects the heavy equipment market. “This is good news for AEMP members,” Kuehl said. You are in low exposure areas — construction, heavy equipment production, waste management. The highest risk sectors are those such as apparel, airlines and tourism. “Building new warehouse facilities in particular is fueling new construction expansion.

However, locally funded state and municipal construction projects that rely on taxes and user fees have been severely impacted, which Kuehl says will lead to deep cuts. In the July 7, 2020, issue of the Business Intelligence Brief, Kuehl writers:

“The sudden collapse of the economy has been felt in a variety of sectors, but few have been as seriously affected as state and local government as they depend on revenue from sales taxes, property taxes, user fees and other consumer dependent sources. These have all but dried up in every state and city, and budgets have been severely impacted. There are never many options for state and local governments when it comes to working through a budget as they can’t raise revenue as easily as the federal government can and they do not have the ability to borrow as the national government can. They are left with budget cuts as the only response to a fiscal crisis.

ANALYSIS

In response to the 2008 recession the states received a massive influx of money from the federal government. This was done as it was assumed that this stimulus would make it into the economy more quickly if it were the states that administered the programs. Remember that whole “shovel ready” argument? It turned out that states used the bulk of that money to protect their budgets for a year or two, but eventually they had to face their revenue shortages. Fortunately, the economy had started to recover a little by 2010 and 2011. This time the states have no expectation of receiving that federal help, and that means the cuts are starting already and are expected to be very deep. Funding is likely to be reduced across the board.