Speaking at the Associated Equipment Distributors Executive Forum in Chicago Sept. 9, economist Eli Lustgarten, senior vice president and director of research for J.B. Hanauer & Co, predicted continued economic growth through 2006 and solid rental market demand at least through 2005.
Lustgarten noted that demand for larger equipment will continue to strengthen as 2004 unfolds as the end market demand recovers. He predicted the continuation of strength in the replacement market for smaller rental equipment into next year, although, he noted, the cycle is likely to slow during 2005 as residential construction begins to cool and depreciation incentives expire. However he predicted an increased demand for pavement/foundation-related equipment in non-residential construction, with the likelihood of the passage of a highway-funding bill and hopefully better funding availability at the state and local levels. He added that a stronger economy with rising global growth will increase demand for larger mining equipment, the first strong mining cycle in several decades.
Lustgarten predicted that the overall demand in the smaller equipment rental market would be up between 15 and 20 percent in 2004. His overall assessment of construction activity for 2004 is modest growth as non-residential spending finally increases. He expects non-residential construction activity to rise 6 to 8 percent in 2005.
In the overall economy, capital spending will be on the mend slowly, Lustgarten noted, but with overall industrial activity having declined 30 percent in the recession, even 50- to 100-percent increases in expenditures in areas such as machine tools, plastics machinery and heavy equipment would still leave spending below the previous peak in the last decade. However, he said, profitability in most sectors should return to prior peak levels because of the benefits of downsizing, the focus on Six Sigma, lean manufacturing and other quality and productivity enhancement programs.