Is the End of the Recession in Sight? U.S., Canadian Economies Show Some Bright Spots

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--"I want to know when it's going to be like 1996 again," one purchasing manager murmured to another. In effect, the word from Industrial Info's leadership was: Not any time soon. But the U.S. and Canadian economies are starting to show some bright spots, which could lead to an overall economic expansion in 2010.

Click on image at right for a breakdown of industrial spending from 2007 forecast through 2010.

Approximately 300 people attended Industrial Info's "Twenty-Ten Industrial Market Outlook," held November 10 at the White Oak Plantation in Baton Rouge. Attendees represented a broad spectrum of industry: equipment vendors, distributors, manufacturing firms, engineering and construction firms, labor unions, and financial services. The Twenty-Ten Outlook coincides with Industrial Info's release of the 2010 Global Industrial Outlook, which highlights forecast spending for the coming year. Since 1993, IIR has published a forecast for capital and maintenance spending for the industrial market in North America, and the 2010 outlook marks the fifth year of projecting spending estimates around the world.

Industrial Info's North American Industrial Database shows that in the U.S. and Canada, 2,835 capital projects with a start date of 2009, representing a total investment value (TIV) of $283 billion, were placed on hold or cancelled outright this year, according to Industrial Info President and CEO Ed Lewis. Another 3,633 capital projects in North America were delayed and moved out to 2010 or beyond, he said, noting that these projects represented $1.2 trillion in capital spending. Industrial Info's North American Project Spending Index for October was down almost 32% compared to year-earlier spending levels.

However, the news wasn't all bleak, Mr. Lewis told the audience. Since the start of 2009, Industrial Info has identified 6,080 new North American capital projects, representing a TIV of $350.9 billion.

Michael Bergen, Industrial Info's senior vice president of Marketing and Forecast Products, discussed the impact the economic recession is having on industrial firms by showing correlations between inventory levels, capacity utilization, and consumer confidence. Since the beginning of 2009, a sharp decline in industrial inventories across a variety of industries has occurred, which Bergen said could be a prelude to inventory rebuilds, meaning increased near-term spending. Capacity utilization and new orders for durable goods have increased this year, along with consumer confidence. The U.S. government stimulus spending, while slow to be disseminated in 2009, is starting to lead to new capital and maintenance decisions by corporate leaders for 2010, he added.

Industrial Info forecasts a slight increase in 2010 project spending for capital and maintenance projects from last year. U.S. spending will rise to slightly more than $219 billion, up from about $217 billion in 2009, while Canadian project spending will rise to an estimated $81 billion from about $77 billion this year, Bergen said. Some of the brighter spots in 2009 were light-rail construction starts valued at $17 billion and semiconductor manufacturing projects with combined total investments of $10 billion. The Power and Metals & Minerals industries were other bright spots in North America, said Bergen.

Bergen quoted Schlumberger chairman and chief executive Andrew Gould, who earlier this year said: "The biggest difference I see from both the mid-eighties as well as 1997 and 1998 is the speed with which everybody is reacting. These [economic] cycles are getting much sharper in their amplitude and shorter in their duration." This increased impact could be felt in the recession of 2000, as well as the current recession. Companies have reacted swiftly to economic contraction, appearing to gear up for worst-case scenarios.

Widespread use of supply-chain management principles and enterprise resource planning software has given plant managers and corporate planners much better and faster information about supply, demand, inventory, and cost issues. This enables companies to respond faster to changes in industrial demand, simultaneously allowing companies to delay inventory-rebuild decisions and reordering until the last minute. So while Bergen and other Industrial Info leaders highlighted the positive signs of economic growth in North America, they cautioned that it was not a slam dunk.

Because the success of nearly all businesses now increasingly depends on the rapid dissemination of accurate information and high-quality forecasts, Industrial Info has implemented changes in its business so that clients can become more successful, Mr. Lewis told the Baton Rouge attendees. "Since its founding in 1983, Industrial Info's mission has been to make our clients more successful by providing the most comprehensive, timely, and accurate market intelligence for the heavy industrial process industries. This year, we introduced a new research principle based on better quality-control standards and assurance that data for projects, plants, and units is constantly updated and maintained, meaning that IIR's market intelligence is 'constantly living forward.'"

To showcase the timeliness of Industrial Info's new emphasis on timeliness, Lewis said that data contained in the Baton Rouge presentations were current as of the previous day. He also told attendees that during 2009, Industrial Info opened new offices in Perth, Australia; Galway, Ireland; and Beijing, China, to better cover project developments in non-U.S. markets. These new overseas offices complement Industrial Info's office in Cordoba, Argentina, which opened in late 2005. "Our clients tell us that their businesses have been increasingly globalized," Lewis said. "For that reason, we have made these overseas investments in research so our customers can have access to the most current and accurate data on projects on which they may want to bid. IIR's customers are now being served by our researchers working in offices located in five continents around the world."

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.