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Machinery's picking up: demand for heavy equipment is expected to grow more than 15 percent this year, driving orders for steel and other metals.

Article Excerpt
Thanks to a generally strong economy and an even stronger capital goods sector, demand remains healthy for just about every type of heavy equipment--from construction to mining to agricultural--though the growth rate has slowed from last year.

"The economy is the ultimate driver of heavy equipment, and we are just in the middle innings of the economic expansion. The middle innings tend to last for a long time," says analyst Ken Mayland, president of ClearView Economics LLC, Pepper Pike, Ohio. "Every once in awhile, talk arises that we are in a soft patch, but the economy never moves in a straight line. I think this is just the beginning," he adds.

More importantly, the investment sectors of the economy are faring better than the consumer sectors, notes Jim Owens, chairman and chief executive officer of Caterpillar Inc., Peoria, Ill. "Business profits in many countries are at, or near, record shares of national incomes, and companies are using profits to boost productivity. Low interest rates are encouraging companies to upgrade and expand aged capital equipment and, more recently, structures," he says.

Describing it as a "stealth boom," Mayland notes that capital spending is rising twice as fast as the general economy. "Capital spending is up about 8.5 percent, while overall GDP growth is 3.5 percent. I expect that kind of ratio to persist into 2006."

So does Robert McCarthy of Robert W. Baird & Co., Chicago. "If growth peters out now, it will be the shortest capital goods recovery in history, and I don't expect that to happen. Currently, capacity utilization is high, at a range that can support continued levels of investment."

The unusual length and depth of the last manufacturing recession, which created significant pent-up demand, is still contributing to the rebound in all the different heavy equipment sectors, says Jim Meil, chief economist for Eaton Corp. in Cleveland.

Most construction and agricultural equipment has not been replaced for at least six...

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