Expect strong economic results this year

Strength in the general economy will carry forward to the manufacturing and warehousing sectors as well as materials handling equipment sales.

By Jeff O'Neill, Associate Editor -- Modern Materials Handling, 1/1/2006

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The U.S. Gross Domestic Product (GDP) moved ahead 4.1% in the third quarter in 2005. In fact, that number would have been 4.5% had it not been for a number of hurricanes ravaging the southeastern United States, according to Jim Haughey, an economist for Reed Business Information, parent company of Modern. He expects that when the final numbers are in, GDP in 2005 will advance 3.6%.

Overall, Haughey says he expects an average of roughly 4% growth in GDP in 2006. “Historically, this is very strong growth,” he adds.

Manufacturing mirrored the economy’s surge in 2005. Manufacturing started strong in 2005, slowed a bit, and finished strong to end the year,” Haughey says.

Auto manufacturers are not faring as well as most other manufacturing sectors, he adds. Due in part to imports taking primary market share, coupled with a lower demand, automobile suppliers are feeling the crunch. The same goes for parts manufacturers in middle America, as some of those operations are being outsourced abroad, Haughey says.

The warehousing/distribution sector is experiencing record low inventories, coupled with ever climbing throughput. While Haughey does not expect a major change in this environment, he does expect the segment will grow faster than manufacturing as imported goods continue to flow through the supply chain in 2006 and beyond.

Warehousing will continue to see a surge in goods throughput in 2006, following a 2005 that saw a 4.8% increase over 2004 numbers, he says. Despite the increased volume of goods moving through U.S. warehouses, Haughey says that square footage in the sector remains relatively flat as companies use software and advanced materials handling practices to keep inventory levels low.

Materials handling equipment sales posted their largest sales year ever in 2005, ringing in a huge 27% increase over 2004 – which was 12% higher than in 2003. And while the rate of increase will plateau in 2006, that’s still good news for equipment suppliers. They can expect a flat year in terms of growth, but strong from a sales perspective.

“The truck market has peaked,” Haughey says, “and although conveyor sales continue to rise, the truck market is much bigger.”

Prices for materials handling equipment are expected to creep up roughly 1.5%, as opposed to the 5.3% increase in 2005. “Steel prices continue to slide, helping overall prices slow their upward movement,” he adds.

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