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Economists at AED Executive Forum Predict Slow Growth for Equipment Industry

Two eminent economists predicted growth, albeit slow, for the U.S. economy, construction equipment and equipment rental industries in the latter half of 2010 and 2011, at the Associated Equipment Distributors Executive Forum in Chicago last month.

Eli Lustgarten, senior research analyst at Longbow Research, specializing in the industrial manufacturing and technology sector, said construction equipment sales and production should rise in double digits in 2011, assuming sustained growth in the global economy. He said the domestic construction equipment end market demand will likely rise modestly in 2010, initially favoring smaller to medium equipment, which has declined for the past three to four years. Lustgarten said rental companies are likely to see an upturn in demand because contractors will tend to favor rental rather than outright purchases of equipment.

Lustgarten said demand for light construction equipment in 2010 will increase by 5 to 10 percent in North America, 0 to 5 percent in Western Europe and a strong 60 to 70 percent in Latin America. Heavy equipment demand will grow by 0 to 5 percent in North America, 30 to 35 percent worldwide, 60 to 65 percent in Latin America, but will decline by 0 to 5 percent in Western Europe.

After a 2.4-percent decline in GDP in 2009, Lustgarten predicted a 2.8-percent increase in 2010 and 2.5 percent in 2011 in the U.S.

Housing will likely show improvement during the next two years, rising from about 550,000 starts in 2009 to

625,000 to 675,000 in 2010, Lustgarten said, with perhaps 850,000 to 900,000 or more in 2011. Non-residential construction is likely to fall 5 to 15 percent in 2010 and stabilize in 2011 before resuming slow growth. He expects a mid-single-digit gain in construction spending led by residential and a modest turnaround of 3 to 10 percent in non-residential spending. New legislation should relieve the bottlenecks in infrastructure and other public works markets leading to improved activity in 2012 he said.

Dr. Eugenio Aleman, director and senior economist at Wells Fargo, said the recovery will remain weak for the foreseeable future, expecting the third and fourth quarter of 2010 to grow by about 1.5 to 1.75 percent. Aleman pointed out that after a loss of 9 million jobs during the recession, multiplied by an average $45,000 per capita, it will take about five years to re-create that level of employment. Aleman said the credit situation is improving, but at a very slow pace and the credit markets will take years to recover. Aleman said he doesn't expect a double-dip recession, but rather growth of around 1.5 percent, barring an unforeseen crisis.

The analyses from Lustgarden and Aleman will not likely set off fireworks celebrations and dancing in the streets but compared to the devastation of the past few years, growth sounds good, no matter how minimal. And if the streamlining of rental companies and improved efficiencies and processes, have made a difference, slow growth might almost feel like slow with an upward arrow. We'll see.

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