Manufacturers Survey: Capital Expenditures Expected to Drop 2.5% in Next 12 Months

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Researched by Industrial Info Resources (Sugar Land, Texas)--Respondents in a new survey conducted by the National Association of Manufacturers (NAM) expect to see a 2.5% decline in capital investments during the next 12 months, the worst reading since first-quarter 2009, the association said Thursday.

Industrial Info is tracking more than $355 billion worth of active manufacturing projects in the U.S., including $12.4 billion that have been impacted by the COVID-19 pandemic. For related information, see May 19, 2020, article - North American Project Fallouts Escalate in April.

Click on the image at right for a graph showing COVID-19-impacted capital manufacturing project activity by U.S. market region.

The three most affected segments are automotive manufacturing ($5.8 billion), followed by distribution & warehousing ($4.1 billion), and plastic & rubber products ($1.1 billion).

The second-quarter 2020 NAM survey, which was conducted May 4 to May 15, had 604 respondents, the association said in a press release.

According to the survey results, about 47% of the manufacturers anticipate reduced capital spending in the next year, with 33.7% expecting no change and 19.4% forecasting more capital expenditures. Large manufacturers (those with 500 or more employees) expect capital expenditures to drop 3.7%; medium-sized manufacturers (those with between 50 and 499 employees) expect capital expenditures to drop 2.2%; and small-sized manufacturers (those with 49 or less employees) expect a 1.6% drop.

The association said manufacturing sector production fell 18.5% between February and April, while employment declined by at least 1.3 million.

"Overall, the data reflect a sector that is experiencing its worst contraction since the Great Recession - a finding that mirrors other economic indicators," the association said.

Despite the crisis, most manufacturers have continued to operate, the association said. More than 67% have continued operations, and 31.6% temporarily halted only part of their operations, according to the survey results.

When asked how the COVID-19 pandemic affected their businesses, more than 86% said that they had limited business travel, while 78.3% have required flexible work arrangements. More than 59% said they have experienced disrupted supply chains; 49% had unplanned production stops; 39% furloughed some workers and 22% cut pay for some workers. Two-thirds of the respondents said the COVID-19 outbreak would force them to re-engineer the production process or operations with "social distancing" in mind.

The manufacturing survey results chime with the latest results from the U.S. Federal Reserve's Beige Book, which indicated overall economic activity declined in all 12 Federal Reserve districts.

"Auto sales were substantially lower than a year ago, although several districts noted recent improvement," according to the Beige Book, which was released on Wednesday. "A majority of districts reported sharp drops in manufacturing activity, and production was notably weak in auto, aerospace, and energy-related plants."

The Dallas, Texas-based Eleventh Federal Reserve District, which consists of Texas, northern Louisiana and southern New Mexico, said economic activity contracted further during the latest reporting period, although the pace of decline moderated from April to early May in manufacturing and services. Manufacturers of transportation equipment and those tied to the Oil & Gas sector were among the hardest hit. Refinery utilization rates fell to 70% in April, compared with normal run rates of more than 90%.

"Margins remained depressed and petrochemical manufacturers noted deferring maintenance and/or delaying construction projects to preserve capital. Only food manufacturers continued to cite growing demand," the Eleventh District reported.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.