© Henrischmit/FOTOLIA

For the first time in four years, the supply of new construction equipment is catching up with demand. While the softening housing market has put a damper on new machinery sales, some heavy machines will remain in tight supply in 2007, say manufacturers. Contractors will likely buy even more machinery next year, but various estimates indicate that the average rate of increase in the U.S. will probably fall below 5%, a sign that the construction industry has enough equipment to keep up with backlogs. Declines in single-family housing have already dragged down small equipment sales, such as skid-steer loaders, but nonresidential construction will continue to keep large equipment, such as lattice-boom crawler cranes, in high demand through next year, say manufacturers.

Related Links: Growth Pulse Weakens but the Patient Is Still Healthy FMI's Forecast Leads the Bulls Everything's Strong Except Housing Complete Report The Complete Forecast 2007 Special Report

Contractors and rental companies operating elsewhere—Canada, Latin America and Asia, for example—will need to buy slightly more equipment next year than others will for U.S. projects, according to Milwaukee-based Association of Equipment Manufacturers. It forecasts U.S. sales to grow 3.9%, following this year’s estimated 11.2%. But other international markets, AEM says, may grow as much as 6.4% after posting 10.9% gains this year. “There’s no question that this is far more of a global market than it was 10 to 20 years ago,” says Charles Rentschler, an investment analyst for New York-based Foresight Research Solutions.

Equipment makers have continued to set sales records despite a U.S. housing slowdown. Caterpillar Inc. just finished out a record third quarter with $769 million in profit on $10.5 billion in sales. It expects year-end sales to hit $41 billion, which will likely send Cat well on its way to meet its revenue goal of $50 billion by 2010. Wall Street has mixed feelings on the years ahead, though, as some analysts, like Rentschler, are calling for a sharp downturn in manufacturing through 2008. Others, such as Andrew Obin, an analyst at New York-based Merrill Lynch, predict that international sales will help offset declines in the U.S. “We continue to think that investors underestimate growth opportunities for Cat in 2007,” he said in a Nov. 6 bulletin.

Put in perspective, sales over the past two years “were among the highest in recent years,” notes Gerry Shaheen, group president of Peoria, Ill.-based Cat. “Although the U.S. economy is starting to show signs of slowing growth, it has displayed surprising resilience,” he adds. Other manufacturers agree that AEM’s forecast, which it released during an annual conference held Nov. 5-7 in Boca Raton, Fla., is on target. “Right now, that feels pretty close to me,” said Chris Neville, marketing manager for Suwanee, Georgia-based Doosan Infracore America Corp., formerly known as Daewoo. Some products, such as mobile cranes, are sold out through 2008. “It’s busy out there,” says Glen E. Tellock, president of Manitowoc Crane Group. “Big iron is going to hold steady,” adds Neville.

New products and global demand could be enough to hold up machinery prices again next year. The current buying cycle, which appears to be flattening, has fared well for suppliers. Equipment prices soared an estimated 3.5% this year, according to the Producer Price Index, and are 16% higher than four years ago. In contrast, the PPI posted 4% gains for the four-year period between 1998-2002. Manufacturers plan to raise list prices again next year, by as much as 5%, but 2008 may see prices leveling off. “We are certainly on the ‘back nine’ in terms of the industry,” Rentschler says.