MRO Magazine

Brighter prospects predicted for machinery and equipment producers

Toronto,ON -- As 2003 drew to a close, general machinery and equipment producers were finally becoming a bit more o...


Industry

February 9, 2004
By MRO Magazine
MRO Magazine

Toronto,ON — As 2003 drew to a close, general machinery and equipment producers were finally becoming a bit more optimistic about their future, according to a Dec. 11, 2003, report by Global Insight Inc. There was ample evidence to suggest that the tide is turning, but having suffered declines in output of 11% in 2001 and 7% in 2002, caution remains the watchword.

U.S. spending on industrial equipment remained anemic for the year. Spending did rise at an annual rate of roughly 6.0% in the third quarter, but was still 0.9% below its year-earlier level and 10.6% below its first-quarter 2001 peak. The U.S. industrial sector is emerging from an extended slump, but it will take some time before the country’s manufacturers increase their capital spending.

Spending on construction machinery, agricultural machinery, tractors, mining and oilfield machinery, and service industry machinery surged ahead at an annual rate of almost 36% between the second and third quarters of 2003. Third-quarter spending was 10% above comparable 2002 levels. This spending spree, however, followed eight dismal quarters.

Residential construction has remained extremely strong, offsetting the dramatic weakness in non-residential construction and a drifting public sector. Farm income has been on the rise, and when farmers have money, they buy equipment. Tight supplies and high prices have stimulated oil and gas patch activities. Finally, the service sector has been gaining ground and slowly stepping up its capital spending.

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Machinery and equipment orders

Overall orders for machinery and equipment have been on an upward trend since July. And Global Insight believes the prospects for the industry will brighten considerably over the next two years. The NAFTA economies will finally hit their stride, with consumer spending, business investment and foreign trade accelerating. Traditional manufacturing should rack up its best performance since 1997-98, leading to further increases in spending on industrial machinery.

The high-tech sector has turned the corner and better days lie ahead, as spending on semiconductor-making equipment rises. Non-residential and public construction will finally turn around, even as business remains good for homebuilders — good news for construction machinery. Farm sector income has also improved in 2003 and should bolster spending on agricultural machinery over the next few years.

Supply and price concerns will stimulate natural gas and oil exploration efforts, which will lift outlays for oil and gas field machinery and equipment. The rest of the mining industry should be gaining ground as the economic recovery continues. The prospects for the service sector will brighten considerably. Finally, machinery and equipment exports will surge, as U.S. producers benefit from a revival in rest-of-world capital spending and a weak dollar.

Indications are now that after a modest 0.6% decline this year, machinery and equipment production will advance by 3.5% in 2004 and 5.5% in 2005. As the cyclical recovery in capital spending winds down, the growth in machinery and equipment production slows to 3.5-4.0% in 2006 and roughly 2.5% per year thereafter.

Global Insight Inc.’s Canadian Service provides clients with analysis, data, and forecasts for the Canadian economy and the individual provinces. Its clients use the Canadian Service to assess economic, financial and investment risk, as well as business opportunities. The Canadian Service Forecasting Team has won a KPMG award for forecast accuracy three times over the past decade. For more information, visit www.globalinsight.com.