The U.S. economy slowed in the first quarter, slipping to a 3.1% annual rate from its previous 3.8% pace. That may be starting to pull down monthly construction equipment shipments, but they still are way ahead of where they were a year ago, and so are prices.
"Were seeing continued strong demand," says Dennis R. Slagle, president and CEO of Volvo Construction Equipment North America Inc. The units Sweden-based parent company, which also owns Mack Trucks Inc., reports a first-quarter sales jump of 17% compared with a year ago. Its operating margin also jumped from 5.1 to 8.7%. Slagle says suppliers "can start focusing on leveraging off of volume" by pumping more money into research and development. Volvo just unveiled a 70-ton hydraulic excavator, the largest in its line, slated for production in Korea this fall.
Bermuda-based Ingersoll-Rand Co. sold 16% more product during the first quarter, due largely to Bobcat and other equipment demand. The firm also boosted its operating margin from 10.6 to 12.1%. IR has just introduced two new air compressors, rated at 160 and 185 cfm, replacing a nine-year-old design.
Caterpillar Inc., Peoria, Ill., grabbed a 29% quarterly sales increase and raised its operating margin from 8.7 to 9%. That is "the best since the first half of 2004 when material cost pressures began to accelerate," says Chairman Jim Owens. High steel prices and tight supplies of off-road tires are still a problem, he adds.
Equipment prices are up 3 to 4% this year, according to government data. But manufacturing is declining. In March, the value of shipments slipped 4.3% for equipment and 1.2% for heavy-duty trucks. Still, both markets are shipping 22% over a year ago.
Producers were "hammered pretty hard during the last three or four years" and are "coming back from exceptionally low levels," says Ken Kremar, a New York-based analyst at Global Insight Inc. He forecasts a moderate 6% investment growth this year for off-road and 9% for on-road machines.