Construction equipment manufacturers forecast continued business gains

News Association of Equipment Manufacturers October 28, 2005
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Construction equipment manufacturers expect overall industry growth to continue through 2006, but at a somewhat slower pace than 2005, with gains predicted across U.S., Canadian and other worldwide markets, according to an annual business forecast conducted by the Association of Equipment Manufacturers (AEM).

Each year, the North-American based AEM trade group polls its construction equipment manufacturer members on anticipated industry-wide performance of this multibillion-dollar industry.

In AEM's latest "outlook" report, construction equipment business in the U.S. is anticipated to close on a strong note for 2005, with increases of 13.9%, followed by 2006 growth of 9.3%. For Canada, construction machinery sales are predicted to gain 13% by year-end 2005 and then increase 8% in 2006. The forecast for other worldwide markets is 8.4% growth for 2005, followed by 2006 gains of 9%.

"Our economy has been robust, and equipment sales very strong, with 2004 and 2005 among the industry's best in recent years. Business volume remains solid but our members collectively do not believe this level will be sustained," stated AEM Chairman Charles Stamp, Vice President Public Affairs Worldwide for Deere & Co., Moline, Ill.

General economy, "Highway Bill" key factors affecting 2006 business

The state of the overall U.S. economy is the leading factor that will affect growth, say construction machinery manufacturers as they look to 2006, including consumer confidence and interest rates levels, and their effect on housing starts.

"The housing market is a key driver of our industry's sustained business growth. We continue to enjoy an exceptionally long period of historically low mortgage interest rates. Consumer confidence has remained moderately positive but could turn negative with rising interest rates and escalating energy costs," noted Stamp.

The impact of the highway bill on future business is also a major factor cited by manufacturers participating in the AEM outlook survey, since the building and repair of highways, bridges and other public works is a significant component of overall construction activity. After almost two years of short-term extensions, Congress passed a bill that the President signed into law in August 2005, calling for total guaranteed funding of more than $286 billion dollars for highway and transit programs through Fiscal Year 2009.

"The challenge now is that individual states may not have the ability to match the modest federal increase, which may limit new contracts and slow down business. And, with higher oil and gasoline prices, some are calling for money to be diverted away from highway needs into general taxpayer relief," Stamp said.

Business Impact of Steel Prices, Exports and Rental Markets Cited

Steel prices and availability have stabilized somewhat, but they still play a significant role in manufacturers' ability to build and sell equipment, say AEM outlook survey participants.

"We continue to face materials shortages, including steel, and higher commodity costs. The negative impact of these is a serious concern during this current expansion. While supplies and prices have eased in recent months, we still face production bottlenecks," noted Stamp.
Other top issues identified by survey respondents include the strength of the U.S. dollar, underscoring the global scope of the industry, and rental company business, highlighting this major customer segment for many manufacturers.

"Exports of construction equipment have also increased as overall business has expanded, but we are watching the movement of our currency against other nations, especially as our interest rates creep upward," Stamp said.

"The rental market demand for equipment has also been favorable, but changes in rental company purchasing decisions obviously affect the manufacturers, so we're watching rental company time utilization and dollar utilization. We are optimistic at least through 2006 of rental company capacity to purchase equipment for growth and replacement," added Stamp.

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