Equipment makers say industry growth to continue through 2005, into 2006

Even with the recent rash of hurricanes affecting the U.S. coast, construction equipment manufacturers expect overall industry growth to continue through 2006, but at a slower pace than 2005, according to an annual business forecast conducted by the Association of Equipment Manufacturers.

In AEM’s “outlook” report, construction equipment business in the United States is anticipated to close 2005 strongly, with increases of 13.9 percent, followed by growth of 9.3 percent in 2006. Construction machinery manufacturers, who were polled for the study, said the state of the overall U.S. economy is the leading factor that will affect growth.

“Our economy has been robust, and equipment sales very strong, with 2004 and 2005 among the industry’s best in recent years,” said Charles Stamp, AEM chairman and vice president of public affairs worldwide for Deere and Company.

Economic growth factors include consumer confidence and interest rates, and their effect on housing starts. The housing market is the key driver of construction’s sustained business growth, and consumer confidence has remained moderately positive, though rising interest rates and escalating energy costs could soon affect consumer confidence negatively, Stamp said.

Another major issue cited by manufacturers participating in the AEM outlook survey is the impact of the six-year, federal highway bill on future business. The bill, which President Bush signed into law in August, calls for guaranteed funding of more than $286 billion dollars for highway and transit programs through fiscal year 2009. Since the building and repair of highways, bridges and other public works structures is a significant part of overall construction activity, it is difficult to estimate its impact.

“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,” Stamp said. “With higher oil and gasoline prices, some are calling for money to be diverted away from highway needs into general taxpayer relief.”

Other dangers to construction growth are material shortages and higher commodity costs that have recently plagued the industry, Stamp said. Even though steel prices and availability have stabilized somewhat, they still play a significant role in a manufacturer’s ability to build and sell equipment, according to survey participants.

Respondents also listed the strength of the U.S. dollar and rental company business as top issues. Stamp says exports of construction equipment have increased as overall business has expanded and the rental market demand for equipment has been favorable.

The AEM annual outlook forecast covers 68 machine product types and 18 types of attachments and components grouped into seven general categories. The anticipated growth for each category in 2005 and 2006 is as follows:

· Earthmoving equipment
2005 — 9 percent; 2006 — 6.6 percent

· Lifting equipment sales
2005 — 29 percent; 2006 — 17.7 percent

· Light equipment sales
2005 — 10.5 percent; 2006 — 9.3 percent

· Bituminous equipment
2005 — 6 percent; 2006 — 10.2 percent

· Concrete and aggregate equipment
2005 — 14 percent; 2006 — 10.2 percent

· Attachments and components
2005 — 9.9 percent; 2006 — 6.3 percent

· Miscellaneous equipment
2005 — 5 percent; 2006 — 4.3 percent