Construction equipment orders were sharply higher in the last two months and equipment shipments edged up slightly to highest total in nearly a year and a half based on April activity reports and the annual revision of manufacturing shipments. Construction equipment is lumped together with mining and oilfield equipment in the monthly Census Bureau survey so it is likely that these two smaller but currently very hot markets are responsible for the recent pickup in orders and shipments.

US construction equipment manufacturers continue to be in a “maintenance” market as they have been for about a year. Shipments are varying month by month in a very narrow range. They are averaging high enough to avoid discount pricing but not high enough to permit the manufacturer and distributor margins realized in the 2005-06 equipment boom. Progressively rising exports to a strong world economy, especially for Chinese infrastructure building and for mining, are offsetting softening domestic sales to the slumping US construction market.

There are no clear signs of a changing trend but here are two tentative signals that equipment demand may be slipping slightly. First, the price index for equipment rental rates has stopped rising which could also be a sign of slipping demand. Second, used equipment prices are now weakening based on auction results.

Hence, the outlook for the next few months is for somewhat weaker pricing for equipment buyers and even more so for equipment renters. Do not expect a significant cut because both steel prices and the still depreciating $US continues to put upward pressure on equipment prices.

US Equipment Market – July 2008

Data Sources: US Department of Commerce and US Department of Labor
Table: Reed Construction Data

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