Construction Machinery Manufacturers Predict Smaller Gains in 2007

Construction machinery manufacturers predict smaller gains in overall industry business in 2007, following expected double-digit growth in 2006, according to the annual "outlook" forecast conducted by the Association of Equipment Manufacturers (AEM). Growth is expected for U.S., Canadian and worldwide markets, with the strongest 2007 gains anticipated in global markets.

Machinery manufacturers participating in the annual AEM outlook survey expect overall construction equipment business in the U.S. to close out 2006 with increases of 11.2% compared to the previous year, and that business volume to Canada will gain 12.7% by year-end 2006. Sales to other worldwide markets for 2006 are anticipated to grow 10.9%.

Looking to 2007, survey participants forecast increases of 3.9% for the U.S. and expect business volume to Canada to increase by 5.0%. They anticipate growth of 6.4% in other worldwide markets in 2007.

Each year, the AEM North-American based international trade group polls its construction equipment manufacturer members on expected industry-wide performance of this multibillion-dollar industry. Member companies' machines and equipment build and repair America's and the world's roads, bridges, dams, houses, offices, schools and other public and private infrastructure.

"Although the U.S. economy is starting to show signs of slowing down, it has displayed surprising resilience. For construction equipment manufacturing, the U.S. housing market has leveled off, but this has been offset by strength in non-residential construction, road building and sales to global markets. We are cautiously optimistic that construction machinery sales will continue to grow through 2007, although at a more moderate pace than 2006. To put this in perspective - 2004 and 2005 sales were among the highest in recent years for the U.S. construction machinery manufacturing industry," stated Gerry Shaheen, 2006 AEM Chairman and a Group President of Caterpillar Inc., Peoria, Illinois.

The AEM outlook survey asks respondents to rank the influence of several factors on future construction equipment sales. Not surprisingly, the state of the general economy, including interest rate levels and consumer confidence, are top factors. Housing starts and highway funding will also have a major impact on the continued strength of the industry, according to AEM survey respondents. Other key issues are steel prices and energy costs.

"The strong U.S. economy - coupled with the strength of the global economy - has kept construction machinery sales on the upswing over the past few years. There was pent up demand for equipment, since many customers had delayed purchases through the earlier business slowdown," noted Shaheen.

"The strength of the U.S. housing market has certainly been a major factor in the continued business growth of our industry. Higher interest rates have adversely affected this segment with a softening of residential construction," he added.

"The construction and repair of highways, bridges and other public works is also a major contributor to overall construction activity, which makes it of primary importance to many construction equipment manufacturers. The certainty of highway funding for the next few years through passage of SAFETEA-LU legislation in 2005 has been a boon for business," Shaheen remarked.

"The high price of inputs and material shortages costs are serious concerns for our industry and adversely affect equipment manufacturers' ability to meet production needs in a timely and cost-effective manner," added Shaheen.