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Big tractors, big signals.
In company earnings released early Thursday, Deere (DE-0.26%) – the agriculture and construction giant known for its John Deere brand – posted a 16% decline in revenue and a 24% drop in profit for the quarter, with its most important segment, Production & Precision Ag, down 21% from last year. Construction equipment was also hit hard, with that division’s profit plunging 43%.
The company’s outlook was dim, too. In North America, Deere now expects sales of large-scale farm equipment to fall around 30% this year.
How Deere maps onto the U.S. and global economies
But this isn’t a case of a company-specific stumble. It’s a picture of what happens when farmers, builders, and global buyers pull back on spending, and it’s what you have to expect from a goods-producing economy at last running out of post-COVID momentum while also feeling the drag of higher capital costs. Deere’s core customers are closing their wallets as interest rates remain high, grain prices weaken, and construction demand cools off.
Adding to the mix is a tough foreign-exchange environment for the ag giant. Deere reports in U.S. dollars, so the weakening USD is hurting its margins from overseas sales and operations. In keeping, the company flagged currency headwinds across all major business lines.
Still, Deere remains a dominant force; it’s the largest farm equipment maker in the world, with a stunning 79% of its U.S. “complete goods” sourced domestically. It’s also a beloved brand, embedded in contemporary brainspace well outside farming communities and construction circles via an absolutely constant stream of “save a few bucks” Netflix (NFLX-0.32%) commercials.
And right now, those bucks clearly need saving
The latest economic indicators, also released Thursday, echo Deere’s warning that the physical economy is slowing down. April’s surprise drop in the Producer Price Index (PPI) — down 0.5% month-over-month — suggests businesses are absorbing cost pressures rather than passing them along, a trend that compresses margins in capital-intensive sectors like ag and construction.
It makes sense that we’d see the strain show up here first. Capital equipment and commodities tend to be early indicators of slowdowns, precisely because they sit early in the business cycle. When farmers and builders hit pause on big-ticket purchases, it often flags that broader demand is cooling, too, though more direct evidence can take longer to show up.
Similarly, the Philadelphia Fed Manufacturing Index, while less bleak than last month, continues to suggest that industrial activity is contracting.
Deere’s own results — double-digit drops in both sales and profits — align pretty squarely with these signals. Businesses and farmers are pulling back. Add currency headwinds from a softening dollar, and Deere’s quarter becomes a reflection of what the macro numbers are quietly saying.