For many sports fans, the Rose Bowl football game is one of the highlights of the year. Construction equipment manufacturers also expect to start 2005 with rosy thoughts.

The industry will end 2004 with robust business growth, followed by continued but more moderate gains next year, according to a study conducted by the Association of Equipment Manufacturers (AEM, Milwaukee).

Gains are expected to be strongest for the U.S. market. Manufacturers expect construction equipment markets to close out the year with double-digit gains in the U.S. (16.1 percent) and Canada (14.3 percent), and an increase of 8.8 percent in other worldwide business.

For 2005, market growth is predicted to continue, but at a slower pace: An 8.4 percent increase in the U.S., a gain of 6.6 percent for Canada, and a 7.0 percent jump in other worldwide markets.

"Optimism is definitely the mood as our industry continues to recover from the business slump of the past few years," says AEM Chairman Charles Stamp, who also serves as vice president of public affairs at Deere & Co. (Moline, IL).

Construction equipment manufacturers predict that commodity costs, most notably steel prices and availability, will influence 2005 business growth. "When the U.S. government lifted steel import tariffs late in 2003, industry experts expected prices would stabilize and perhaps fall," explains Stamp. "But, other factors affected the marketplace in 2004. These included world demand from China, a weak U.S. dollar, shortages of scrap steel, rising costs of other raw materials, and higher logistics costs. In addition, increased oil and gas prices affect our cost of doing business."

Continued federal transportation funding is extremely important for every manufacturer and is a major factor noted in the AEM outlook report. "Government funding under a new federal highway bill should boost public works spending, even if the authorized spending levels do not fully meet road and bridge repair needs," claims Stamp. "Delays in the passage of transportation legislation has affected the pace and amount of state transportation contract awards. States have not and will not sign significant contracts without assurances of federal funding. Lower state contract execution has negatively impacted machinery sales."

The state of the general economy is among the top concerns of construction equipment manufacturers when rating factors that will affect future business. This includes interest rate levels and their impact on consumer confidence and housing starts.

"The housing sector is a key factor in the strength of the overall construction marketplace, and interest rates play a significant role in the growth of this market segment," Stamp points out. "While interest rates remain at historically low levels, Federal Reserve policy will be closely monitored."

Equipment rentals will continue to affect the construction equipment industry. "The rental market is an important segment," says Stamp. "Approximately one-half of construction machinery sold is estimated to enter the rental market. There remains pent-up demand from our customers, who have been replacing aging fleets now that the general economy is growing."

The value of the U.S. dollar compared to other currencies is another factor which will impact overall equipment sales. "Exports are vitally important to the profitability of many U.S. construction equipment manufacturers," notes Stamp. "A comparatively weak U.S. dollar has helped boost exports during 2004." The AEM annual outlook study covers 68 types of products and 16 types of attachments and components. Those products are grouped into seven broad segments:

• Earthmoving-excavators, loaders, graders, trenching machines, off-highway haulers, tractors, scrapers and log skidders. For 2005, business volume in this segment is expected to show increases of 7.8 percent for the U.S., 6.9 percent for Canada, and 5.6 percent for export markets.
• Lifting-lattice boom and hydraulic cranes, tower cranes, aerial lifts, boom trucks, rough-terrain forklifts and telescopic handlers. In 2005, anticipated gains in this segment are 8.7 percent for the U.S., 9.7 percent for Canada, and 5.9 percent for the rest of the world.
• Bituminous-asphalt plants, rollers, asphalt pavers, cold planers, soil stabilizers and road wideners. In 2005, U.S. sales of bituminous machinery are predicted to be the strongest with a 10.4 percent increase. A 6.5 percent increase is expected for Canada, with a projected growth of 9.5 percent for overseas markets.
• Concrete/aggregate-crushers, screens, feeders, conveyors, washing equipment, rock drills, concrete batch plants and pavers. Sales in this segment are anticipated to grow 9.5 percent for the U.S., 5.2 percent for Canada, and 10.2 percent for export markets.
• Light equipment-portable air compressors, tampers, breakers, saws, trowels, light towers, generators, pumps, vibrators, compactors, screeds, lasers and mixers. Light equipment business for 2005 is predicted to gain 6.8 percent for the U.S, 5.7 percent for Canada, and 5.9 percent for foreign markets.
• Attachments/components-buckets, rakes, demolition tools, hydraulic components and electrical components. This market segment is expected to increase 6.8 percent in the U.S. in 2005, 5.0 percent for Canada, and 5.7 percent for overseas sales.
• Miscellaneous equipment-trailers, augurs, light trucks, and grouting and pipe-bursting equipment. For 2005, the U.S. market is expected to gain 10.2 percent. The Canadian market will grow 10.8 percent, while export sales should rise 10.0 percent.