Materials handling equipment sales have risen, although erratically, about 15% over the past year. And as good as that is, indications are that the most rapid growth is yet to come.

At this point, total materials handling equipment consumption has recovered to the 1999 level just before the frenzied buying that occurred during the overheated tail end of the last business expansion. Consumption consists of shipments from U.S. manufacturing plants, plus imports, less exports and plus or minus inventory change.

The major equipment buying markets—warehouses, distribution centers and manufacturing facilities—will be expanding faster in the second half of 2004 than in the first half. And then the pace will pick up still more in 2005. As a result, spare manufacturing and distribution capacity will shrink progressively.

Meanwhile, U.S. economic growth clearly accelerated in the second quarter with Gross Domestic Product (GDP) likely to be up 5%, coming off a 4.4% gain in the first quarter. Looking ahead, GDP growth will ebb to 4 to 4.5% through next year but the mix of spending will turn increasingly favorable to the equipment market.

The initial surge in consumer spending, however, is easing due to rising interest rates and the end of tax cuts. Nevertheless, this initial surge boosted distribution and factory activity enough that a pickup in factory equipment began early this year. The recovery in equipment investment will spread to facility renovations and additions late this year.

Both factory and warehouse construction will improve slightly in the second half of the year, coming off very depressed levels. But most of the equipment needs for this new space will come in 2005–06.

Manufacturing growth will be slightly higher in the second half of the year. Both motor vehicle and aerospace sales are expected to dip slightly. But this will be temporary. Materials producers, including metals, chemicals, cement, plastics and paper will provide the largest gain in manufacturing activity. Soaring prices in these worldwide commodity markets means U.S. plants will operate at capacity. Electronics, mostly components and network switches (big boxes with lots of parts), will also grow more quickly, mostly to serve expanding world markets. Production gains will be modest and steady in most consumer markets; nonetheless, spare capacity will continue to shrink.