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Construction Machinery
Text Box: Construction machinery is used in a number of industries and are exported in significant quantity. So, even though the U.S. housing market is just one of many in which construction machinery is used, we can use it as a leading indicator for the production of construction machinery. The chart below shows that the Fed Funds rate is a good leading indicator of housing permits (before a home is constructed the builder must get a permit). We've inverted the scale for the year over year change in the Fed Funds rate because as rates go down homes become more affordable, which means the number of permits should increase. On average, changes in the Fed Funds rate lead changes in the rate of change for housing permits by 12 months. Current Comment - On this chart, the year over year change in the Fed Funds rate has been trending up since May 2006. With the rate of change in housing permits moving slightly higher in September, the worst of the housing permits fall may be over. However, many economists are pointing out that there is still a lot of excess inventory in the market. How quickly the excess inventory gets weeded out will determine if we start to see a significant slowing in the contraction of permits.
Text Box: The chart below shows that housing permits are a good leading for industrial production of construction machinery. As new neighborhoods are built, developers need new equipment to build roads and sewers and builders need equipment to build foundations. On average, changes in housing permits lead changes in construction machinery industrial production by eight months. Current Comment - As noted above, this is the first time in almost 15 years that there has been a significant contraction in housing permits. While industrial production for construction machinery slowed moderately in 2005 and 2006, March 2007 showed a precipitous drop in the rate of change for industrial production. Industrial production now looks to be on the same trend that housing permits have been on since early 2006.
Sources
Fed Funds Rate
Housing Permits
Industrial Production
For more information contact Steve Kline, Jr., financial analyst.
513-527-8800
skline2@gardnerweb.com
Links to other Financial Data from Gardner Publications, Inc.
2008 Capital Spending Survey and Forecast Results
Metalworking Business Index
2008 Capital Spending Survey and Forecast Demographic Reports 
Current and past surveys conducted by Gardner Research
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