Market Monitor Machines USA 2017

• Construction growth supports the industry
• A modest decrease in insolvencies expected
• Payment duration is 30 days on average

The US is the world's largest market for machines/engineering, as well as the third largest supplier. US machinery manufacturers’ share of the domestic market is about 50%. Revenues of the engineering services industry have rebounded since 2015 after some years of decrease, as greater liquidity in financial markets helped to boost spending on new construction. The US machines/engineering sector is expected to record value added growth of 2.7% in 2017 and even 4.0% in 2018.

Construction-related machinery businesses are expected to benefit in 2017 from construction starts in the United States which are forecast to increase 5.9%. Infrastructure spending is also expected to expand in 2018, supporting the sector. Quality engineering products will remain in very high demand throughout most industrial segments in 2017 and 2018.

That said, machinery businesses related to the oil/gas or the mining segments have been affected by lower capital spending on purchasing machinery and equipment. However, with oil and gas prices forecast to rise in 2018, this could increase capital spending on equipment next year.

In general the dependency on bank financing of this capital-intensive industry is high, and US banks are principally willing to provide loans to the sector. The average payment duration in the US machinery industry is 30 days, however, payment terms can be longer as capital equipment can carry a higher price tag. Payment experience over the last two years has been good, with a rather low number of non-payment cases, and it is expected that those will decrease further in the coming six months.

Compared to other US industries the number of insolvencies is low in the machinery sector. Business failures are expected to decrease about 4% in 2017 and 2% in 2018, in line with the overall US business insolvency development.

Due to the rather moderate credit risk, our underwriting stance for the US machinery sector is generally open. However, some caution is still advised on machinery businesses dependent on the oil/gas and the mining industry due to their still uncertain business outlook. The same applies to machinery companies and their buyers located in areas affected by Hurricane Harvey (mainly Texas and Louisiana). Therefore, our sector outlook for the US machinery sector remains “Fair” for the time being.