Spending in U.S. Industrial Manufacturing Industry Remains Flat in Third Quarter amid Economic Concerns

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Researched by Industrial Info Resources (Sugar Land, Texas)--The economic slowdown over recent months has not been kind to the Industrial Manufacturing Industry. Most companies have dialed back major expenditures, instead consolidating operations and only performing projects that are necessary to keep their facilities in operation. The demise of the automotive sector has been especially hard on the industry, which, traditionally, accounted for at least $10 billion in capital and maintenance spending annually. Looking ahead to the projects lined up to begin construction during the third quarter, spending will remain flat in the United States in the industry.

Click on the image at right to see a breakdown of third-quarter spending in the U.S. Industrial Manufacturing Industry.

Only 157 capital and maintenance projects worth an estimated $5.7 billion are scheduled to begin construction in July, August and September in the U.S. Although close to $6 billion in total spending may appear to be a significant amount, in reality it is not when you take a closer look at exactly what projects are scheduled to begin construction.

The bulk of the money being spent in the coming quarter can be attributed to a single project: a proposed $4.2 billion grassroot semiconductor manufacturing plant in New York. This project, being proposed by GlobalFoundries Incorporated, announced in October 2008 and officially formed in March 2009, is a joint venture between Advanced Micro Devices Incorporated (NYSE:AMD) (Sunnyvale, California) and Advanced Technology Investment Company (Abu Dhabi).

This major undertaking will involve the construction of a 1.3 million-square-foot facility that will manufacture 300-millimeter silicon wafers and utilize 32-nanometer technology. M+W Zander U.S. Operations Incorporated (Plano, Texas) is the design-build firm for the project. Construction is scheduled to begin in July, and equipment will be installed in summer 2010. The plant is expected to become operational in 2012 when the project is complete.

Outside of this major project, no region will see more than $312 million in capital or maintenance construction starts during the quarter. If you look at spending without the project in New York, the Rocky Mountain region leads with the aforementioned $312 million in total spending in the form of four projects. A pair of solar panel projects will provide the majority of that spending. These projects, both in New Mexico, account for $310 million of that total spending for the quarter.

Spending within the other regions of the country is equally dismal. The Southeast region has a $1 million grasp on second place over the Northeast region (without the semiconductor project) with $285 million in total spending versus $284 million. The Great Lakes region is in fourth place with the most total projects, mainly because of the number of maintenance projects within the automotive sector that traditionally occur during July, and $171 million in total spending while the Southwest region with $160 million in spending rounds out the top five.

The near halt on spending within the automotive sector has ravaged the Great Lakes region, turning Michigan into a virtual ghost town, and rendering much of the region not much better. Until the automotive situation stabilizes, and this won't be for quite a while, with Chrysler LLC (Auburn Hills, Michigan) declaring bankruptcy and General Motors Corporation (NYSE:GM) (Detroit, Michigan) not far behind, according to most analysts, the Great Lakes region will continue to suffer through poor spending and see an increase in plant closures.

Overall, the quarter is about as bad as it gets for the Industrial Manufacturing Industry. While some increase in spending has been seen within the light and commuter rail sector, most of those projects take a long time to develop, and that spending is not immediate. Even with the addition of stimulus spending aimed at the sector, states are having difficulty working their way through the red tape that accompanies those funds, and spending has been slow to start.

With signs pointing to the recession beginning to lighten, we can expect spending to gradually increase as time goes on. However, most companies are more likely to take a cautious approach to spending in the near term as the economy is still quite shaky. In all likelihood, the fourth quarter will be similar to the third for the industry when it comes to spending, but signs are pointing to an increase in total spending by 2010.

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