Following a very positive start to 2005, indicators are strong that sales of materials handling equipment will increase in 2005 and continue on an upward path in 2006. That's according to Jim Haughey, director of economics at Reed Research Group and a columnist for Modern Materials Handling.

The Modern Materials Handling Orders Index has grown to 108.8 following the fourth quarter of 2004—eclipsing initial projections that the index would surge to 106.5 by the end of this year. Haughey now expects the Index to increase to 115 by 2005 year end.

Haughey reports that materials handling shipments rose 1.1% in December from the previous month. Equipment imports accounted for 21% of equipment consumption in December, up from 19% a year earlier. Over the final two quarters of 2004, shipments of materials handling equipment were up 13.5% over the same period the previous year. These numbers are in step with figures relating to imports and exports as well.

While shipments were up in December, Haughey notes that materials handling orders declined that month. However, "the decline was an aberration because shipments (and imports) are high and rising, and equipment manufacturers have an above average order backlog."

For the materials handling industry, December shipments and imports, while off from November levels, were up 12.4% and 24.2%, respectively, over the prior year—this is shipments from U.S. factories plus imports, minus exports, plus decline in equipment inventory. U.S. manufacturing was static in December, but the industry continues to grow at approximately 5% annually.

Overall, Haughey is optimistic. "The only sour items in the outlook are rising credit costs, rising prices for imported equipment and the continuing trend to leaner inventories that has so far prevented any significant expansion of warehouse space."

"The import share [of materials handling products] is rising even though the dollar has fallen sharply against the currencies of the three largest foreign sources of equipment in the last three years," he said. Despite absorbing most of the currency exchange losses so far, foreign suppliers are expected to raise prices on their exports in the near future.

"Retail sales have picked up, rising at a 7.5% pace, including inflation, in the last three months. But retail sales of goods likely to be palletized are now expanding at only a 6.6% annual pace as consumers shift spending to services as the economic recovery matures," Haughey explained. Expansion in the "goods" portion of GDP has slowed to 6.7% in the last two quarters—yet this rate remains 50% faster than the overall economy.