Reasons for optimism in construction machinery markets - North American Edition 2004 Forecast

Diesel Progress North American Edition, Dec, 2003

Thee construction machinery manufacturing industry expects overall business to remain slow through the end of 2003, but then anticipates 2004 growth in the 3 to 5 percent range, according to an annual industry forecast of the Association of Equipment Manufacturers (AEM). Sales increases in 2004 are predicted for all major product groups covered in the AEM forecast, with the biggest gains in U.S. business.

Machinery manufacturers participating in the annual AEM Outlook Survey expect construction equipment business in the United States to close out 2003 with a 0.4 percent loss, followed by 2004 growth of 5.5 percent. For Canada, construction equipment shipments are predicted to grow 1 percent by year-end 2003 and record a 3.7 percent increase in 2004. The forecast for other worldwide business is growth of 0.3 percent for year-end 2003, followed by a 3.4 percent gain in 2004.

Each year the AEM international trade group polls construction equipment manufacturers on anticipated business conditions. This year's survey covers 63 whole goods categories and 17 types of attachments and components.

The AEM Outlook Survey asked manufacturers to rank several factors which would influence future sales, and also list their major concerns. The state of the general economy continued to be the overriding factor that will determine if business returns to levels not recorded since 2001, according to AEM survey respondents.

This includes factors such as the impact of interest rate levels and credit availability on overall job costs and financing for housing and commercial building starts, dealer inventories and fleet replacement. Also cited was renewed business confidence to spur capital investment as well as steady gains in consumer confidence and thus spending.

U.S. public works construction is an important revenue source for a significant portion of the construction machinery manufacturing industry. Funding under TEA 21 transportation legislation was listed as another major factor in future market growth. Related is the impact of federal funding on state's ability to earmark money for with shrinking state budgets. Congress failed to reauthorize TEA-21 by its September 2003 deadline, and passed a five-month extension (to February 29) in which to work out a new six-year funding package.

Rental markets will continue to account for an increasing share of equipment sales. Capital spending by rental firms to replace aging fleets is another factor that will positively affect future machinery business, according to AEM survey participants.

The construction equipment manufacturing industry is global in scope, and the relative strength of the U.S. dollar compared to other currencies remains a concern. World conditions such as continuing Mideast and Iraq tensions are also seen as negatively impacting a fledgling recovery. On a positive note is renewed business in the Asian sector, spurred by China's huge demand for equipment.

For its annual outlook survey, AEM polls construction equipment manufacturers for their predictions of year-end and next-year business volume. The AEM 2003-2004 forecast covers 63 different whole machine product types and 17 types of attachments and components.

These are grouped into seven broad product categories: earthmoving, lifting, bituminous, concrete and aggregate, light equipment, attachments and components and miscellaneous equipment.

Forecasts by Product Lines

Sales of earthmoving machinery are anticipated to be strongest overall for 2003-2004, followed by light equipment. Overall, sales are expected to be slowest in the lifting equipment and bituminous machinery sectors for 2003, but then are predicted to rebound in 2004.

Earthmoving equipment sales are forecast to increase to all markets for year-end 2003 and 2004. For 2003, a 4.9 percent increase for the U.S., a gain of 6.5 percent for Canada and a 3.9 percent rise in sales to other worldwide markets; and for 2004, increases of 7.2 percent for the U.S., 6.5 percent for Canada and 5.2 percent for other worldwide markets. The earthmoving segment includes excavators, loaders, trenchers, off-highway haulers, tractors, scrapers, graders and log skidders.

The light equipment market includes machines such as breakers, saws, trowels, light towers, generators, pumps, vibrators, compactors, screeds, lasers and mixers. Year-end 2003 business in this segment is expected to increase 1.1 percent for the U.S. and show smaller gains to Canada ( 0.8 percent) and other worldwide markets ( 0.3 percent). Light equipment business for 2004 is expected to increase to all markets: 5.1 percent for the U.S., 2.4 percent for Canada and 3.3 percent for other worldwide markets.

In the lifting segment of the industry, which includes machines such as lattice boom and hydraulic cranes, tower cranes, aerial lifts, boom trucks, rough-terrain forklifts and telescopic handlers, year-end 2003 sales are predicted to drop to all markets, but then rebound in 2004. Year-end 2003 sales are anticipated to decline 7 percent for the U.S. and drop 4.5 percent for Canada and 2.7 percent for other worldwide markets. Gains of 2.4 percent are predicted for 2004 U.S. business, as well as increases of 1.8 percent for Canada and 2.3 percent for other worldwide markets.