ECONOMIC REPORT Q2 2025
Hey PEG Members! Welcome back to the Q2 installment of our 2025 Economic Outlook. 2025 has been an eventful year for the Global and National economies. Despite the recent instability caused by decision-making around tariff policy and changes in government policy, many of our sources remain optimistic due to the solid fundamentals underpinning our economy.
“The economy has a lot of momentum, as consumers still want to be able to improve their lives with new and higher quality products, businesses are still striving to create value and use resources efficiently, and investors still want to make a return on their money. Tariffs are a stumbling block but are unlikely to bring the economy to a screeching halt.”
ITR, Executive Summary, April 2025
This report focuses on the changes in Supply for Equipment, Current Equipment Value Reports, The Labor Market, Demand for Equipment, and strategies for the coming year.
Supply: Current indicators in Industrial Production, Nondefense Capital Goods New Orders, and Wholesale Trade of Durable Goods
Some of the key markets that affect the supply side of equipment rental are industrial production, which deals with machine manufacturing, Nondefense Capital Goods New Orders, which deals with business-to-business machine sales, and Wholesale Trade of Durable Goods, which deals with business-to-consumer machine sales.
In addition, see this chart below to understand the markets for specific commodities in the US and whether they are domestically or internationally sourced. For example, the machinery market is split even between domestic and imported sourcing (54% and 46% respectively).
ITR, Executive Summary, April 2025
Industrial Production
The US has been reshoring manufacturing recently, seeing a high concentration of activity in the transportation equipment and electrical equipment industries. As the tariffs further this trend, domestic production is projected to grow. This, however, is a time-intensive process, which may cause supply chain disruptions and pricing increases in the near-future.
ITR, US Industrial Production, April 2025 Report
Non-Defense Capital Goods New Orders
Non-Defense Capital Goods New Orders are projected to generally rise in 2025 and 2026, then plateau in 2027. The new tariffs could place positive pressure on US-based manufacturers; however, this is unlikely to be reflected immediately due to the US’s industrial production capabilities being close to capacity. Downside risks come from stalled spending/cautious spending from businesses due to the unstable economic environment.
ITR, US Non-Defense Capital Goods New Orders, April 2025 Report
Wholesale Trade of Durable Goods
The US Wholesale Trade of Durable Goods in January was 4.1% above the year-ago level. Macroeconomic signals, including a general rise in the US Total Industry Capacity Utilization Rate, support further rise ahead for Wholesale Trade. This is expected through 2027.
The Machinery, Equipment, and Supplies component is rising but is only a hair above the year-ago level, consistent with the ongoing muted recovery in the US industrial sector.”
ITR, US Wholesale Trade of Durable Goods, April 2025 Report
Equipment Value Reports
General construction equipment demonstrated stable results at retail but declined slightly month over month at auction. Heavy earthmoving equipment values remained stable at auction while retail values continued to increase month over month.
What was a sharp decline has seen a bounce back in March 2025, as both Equipment Sales at Auction and Retail have generally seen value increases.
Rouse, April 2025 Report
The Labor Market
There is muted growth in the employment market as businesses have just exited a soft year and face uncertainty in government policy. Workers are lacking confidence in the market as well, as the pace at which workers are voluntarily leaving their jobs is the lowest in about a decade.
Weekly earnings have caught up with inflation, but there are anticipated inflationary pressures projected later this year into 2026, so budget for larger cost of living adjustments next year. Keep in mind that competition for new hires will be tight once the economy regains momentum.
Plan for potential margin pressures ahead due to inflation and wages, but do not lose focus on retaining high performers who can help you to achieve efficiencies.
ITR, US Private Sector Employment, May 2025 Report
Regarding Labor Rates, Fullbay.com reports that the median tech rate at Heavy Duty Repair shops in 2024 was $32 an hour.
Fullbay, The State of Heavy Duty Repair, 2024 Report
Demand: Construction Planning and Starts
Focusing on demand, here is a breakdown of construction planning and starts for Q1 of 2025:
In general, we are seeing more attention being given to non-building/infrastructure projects and less towards non-residential and residential buildings in 2025. When it comes to starts, there are significant headwinds due to the uncertainty caused by fiscal policy reappropriation and tariffs potentially affecting the cost of materials, supply chain volatility, and labor for these projects. This uncertainty has been affecting the flow of capital to these markets.
Over the first quarter, commercial planning declined 7.8% while institutional planning fell 5%. Regarding the makeup of projects, on the commercial side, weaker planning activity for warehouses, data centers, and retail stores drove this month’s decline. Meanwhile, hotel and office planning continued to accelerate. On the institutional side, planning activity slowed for education, healthcare, and government buildings. Data centers continue to be very significant.
Total construction starts in Q1 2025 have remained flat as compared to Q1 2024.
Regionally, total construction starts in February rose in the Northeast, Midwest, South Atlantic and West, but fell in the South Central.
Outlook and Strategy
Despite the current uncertainty of the economy, ITR, Dodge and TM Capital all exude a slight optimism for the second half of 2025 and the recovery of the economy from this “tariff shock.”
Though the tariffs will disrupt the supply chain, onshoring of manufacturing capabilities will strengthen the economy in the long run. As rental businesses, this instability can work in your favor as equipment ownership is unattractive in our current economic state. Take on the new challenges presented by tariffs with an entrepreneurial mindset, as you will find opportunities arising in substitutions to imports/new supply chains. Regarding demand, the instability and uncertainty of the economy are causing large projects to have tighter wallets. Work on developing productive efficiencies, creating a leaner business, and reinforcing relationships with long-term customers.
“Despite short-term headwinds, including still-elevated interest rates, increased supply of new equipment in the market and political uncertainty, the American Rental Association (“ARA”) affirmed the sector grew 8% YoY in 2024.”
TM Capital, Equipment Rental and Dealer State of the Market: Q1 2025
“1) Do not let fear drive your decisions in this volatile environment.
2) Prices will rise, and volumes could soften. Margin squeeze is likely – fight back with efficiency gains where possible.
3) Mild growth is still probable in 2025, though the risk of stagnation or recession has increased. We continue to run analyses on the policy situation as it evolves. Prolonged uncertainty is a major risk.
4) Relative exposure to imports varies by industry. Supply chain pressures will increase, and lead times may lengthen.
5) Approach tariff challenges with an entrepreneurial mindset.”
ITR, Executive Summary, April 2025
Thanks for reading!
Noah