U.S. machinery and equipment exports posted a healthy 12.5% gain in 2005, although this was considerably slower then the 22.0% jump seen in 2004. Semiconductor-making machinery exports had surged 93% in 2004, but fell by 15% in 2005. Excluding this category, U.S. machinery exports rose 14% in 2005, following their 19% increase in 2004.

As 2006 unfolds, machinery manufacturers still have a lot to smile about. New orders for machinery and equipment had closed 2005 on a very positive note. Orders during the fourth quarter were valued at $87.6 billion, up from $79.5 billion in the first quarter. New orders did decline from December to January and again in February, but for the first two months of 2006 were still running 9% ahead of a year earlier. Thus far, the big winners have been mining equipment, oil and gas field machinery, industrial machinery, HVAC equipment, metalworking machinery, and miscellaneous industrial machinery. Through the first two months of this year, shipments of machinery were running 8.5% ahead of their year-earlier pace. Order backlogs have been expanding and are currently up 14% year-on-year, suggesting additional strength in shipments in the months ahead.

Looking further out, the prospects for both domestic and export demand are bright. Corporate America remains flush with cash, having posted a very strong increase in profits during the fourth quarter of last year. All in all, 2006 capital spending plans are solid, but domestic spending on individual types of machinery and equipment will not move in lock-step.

Farm income peaked in 2004, and farm equipment has already enjoyed a very strong recovery. With income heading lower, the farm-sector capital spending boom is now behind us. The same would seem to hold true for construction machinery, which has done exceptionally well over the past two years. Despite the emerging recoveries in nonresidential and public building, residential construction will begin to taper off and overall construction activity will eventually flatten out. In 2006, power equipment manufacturers will have to deal with the slowdown in the off-highway equipment market and the fact that electric utilities are under no immediate pressure to aggressively add to their generating capacity.

On a more positive note, with oil, gas, coal, and mineral prices holding at very lofty levels, the demand for equipment used to mine and process these commodities should remain strong. The incentive within the manufacturing sector to improve productivity and efficiency has not abated. Moreover, there is pressure in some industries to expand capacity, which bodes well for industrial machinery, metalworking machinery, power transmission equipment, and general industrial machinery.

Of course, there are no guarantees that domestic machinery manufacturers will reap all the benefits from continuing growth in machinery and equipment spending. They still must wrestle with imports, which have increased their share of the U.S. market by almost four percentage points in the past two years. Nevertheless, domestic manufacturers can take solace in the bright outlook for exports. Global Insight expects the U.S. dollar to weaken in the near term, and solid growth is anticipated in key machinery-buying sectors, including agriculture, construction, manufacturing, energy and non-energy mining, and wholesale and retail trade. After increases of 11.8% in 2004 and 4.9% in 2005, production of machinery and equipment is slated to advance 4.5–5.0% this year.

Contact: Raul Dary

24 Hartwell Ave.
Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

www.globalinsight.com and www.wmrc.com