Third-Quarter Spending Sluggish in Great Lakes Region

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Researched by Industrial Info Resources (Sugar Land, Texas)--The recession has been especially difficult for companies in the Great Lakes region of the United States. The complete collapse of the U.S. automotive sector, combined with a general collapse within the heavy manufacturing sector, has led to record unemployment, hundreds of plant closings, and numerous companies shutting their doors. As a result of these problems, many industries have shied away from spending in this region for the past two years. While spending has certainly continued to occur, it has been on a much lower level than the previously experienced in the region. The Great Lakes region headed into 2010 hoping for a reversal of fortunes as the recession began to wind down. During the first quarter of the year, $10.7 billion in construction starts were planned in the region, a good beginning to recovery. However, the planned construction starts have become sluggish during the next two quarters, with $7.5 billion planned for the second quarter, and only $4.8 billion planned for the third.

Click on image at right for a breakdown by state of planned third-quarter project starts in the U.S. Great Lakes Region.

With 260 projects, the number of capital and maintenance projects currently planned to begin construction in July, August and September has remained significant, but the investment totals continue to drop. This may be due, in part, to companies' taking advantage of the recession to relocate or consolidate operations to other areas of the country, or even overseas, to save money.

Other areas of the country, such as the Southwest region, are right-to-work states that do not have to deal with the complications and increased expenses that unions bring to the table--complications that the Great Lakes region, with its rich history of union labor, has contended with for decades.

A look at who will be spending money in the region, and where exactly they will be doing so for the coming quarter, shows reductions across the board. Traditionally, the Power and Alternative Fuels industries have been bastions of spending within the region. However, in the next three months, both industries will see spending curtailed. The Power Industry, the largest of the spenders during the third quarter, is currently only planning to begin construction on 30 capital and maintenance projects worth an estimated $1.4 billion, a significant reduction from the numbers seen in this industry in recent quarters. The Alternative Fuels industry, with its reliance on the rich farmlands of the region, is also seeing a significant reduction in spending, with only 17 capital and maintenance projects worth an estimated $788 million expected to begin construction.

Other industries are certainly contributing to the spending totals for the coming quarter. One bright spot is the Industrial Manufacturing Industry, which is scheduled to see 64 capital and maintenance projects worth an estimated $874 million begin construction. During the bulk of the recession, spending has been slight within the Industrial Manufacturing Industry, especially in the Great Lakes region, where the industry has large numbers of major manufacturing plants. The fact that spending is on the rise within this industry is a good sign for the future. Other industries that are also expected to see significant spending during the coming quarter are the Metals & Minerals Industry (37 projects worth $678 million) and the Food & Beverage Industry (47 projects worth $438 million).

Illinois will be the recipient of the most spending in the third quarter, with 44 capital and maintenance projects worth an estimated $1.2 billion currently expected to begin construction. Indiana will see the second-largest investment, with 43 projects worth an estimated $967 million, while Ohio will see the largest number of capital and maintenance projects, 67, and the third-highest investment total, $915 million. Wisconsin will also see some significant investment at $881 million, while Kentucky and Michigan will see the lowest amount of investment during the quarter, $477 million and $374 million, respectively.

Overall, the fact that spending is trending downward in the region is reason for concern. The Great Lakes region is home to the largest concentration of heavy manufacturing plants in the U.S., with its large population of automotive-related manufacturing and heavy manufacturing plants. What happens in this region affects all other areas of the country. Hopefully, as the national economic situation continues to improve, the Great Lakes region can also bolster spending in the coming quarters.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR'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.