Projected to be a strong year for sales and manufacturing of materials handling equipment, 2005 has shaped up to be exactly that—with 2006 continuing to show growth but slower. This is according to Jim Haughey, Reed Research Group director of economics.

Materials handling equipment shipments, imports and exports are all up over 22% from last year's figures year to date, he notes. In addition, "manufacturers' back orders are up 31.7% over last year—a huge jump," Haughey says. Prices have also responded to the strong demand and other factors such as steel prices, up 7%.

As indicated by Modern's Orders Index, materials handling buyers scrambled to purchase new equipment before year-end 2004. Haughey explains that a tax provision which expired at year end allowed consumers to claim up to $100,000 in depreciation up front for new equipment. That was a strong incentive compared to claiming the same amount over a five to ten year period.

As a result, spending was weak in some areas in early 2005. "There was a scare in February and March that he economy was slowing, but that's largely behind us now," Haughey asserts.

Meanwhile, Gross Domestic Product "goods" are up a "high" 6.6%, he notes, indicating that the nation is still operating in a "goods-dominated economy."

As predicted, credit costs for small businesses securing bank loans have risen about a point, to roughly 6%. In contrast, credit costs for big operations looking for loans in the bond market have actually decreased to about 4.5%, Haughey explains.

Going forward, companies will continue to enjoy equipment market growth, "but not as quickly as we are currently experiencing," he mentions. Modern's Orders Index should stay in the 120s this year, and then into the 110s in 2006. "The Index was in the 80s in 2003 so these are good numbers," he says.

"Peak equipment sales should culminate at year end 2005," Haughey adds. "We have a good year ahead—with next year looking positive as well."