U.S. Industrial Manufacturing Construction Starts Expected to Slow in Third Quarter

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Researched by Industrial Info Resources (Sugar Land, Texas)--Recovery from the recession that devastated the Industrial Manufacturing Industry in the United States has been slow in coming. While construction spending has increased in the industry, revisions in how companies are deciding to spend money have led to significant changes in where and when spending is occurring. The first two quarters of 2012 started off with solid spending numbers for the U.S. Industrial Manufacturing Industry, but looking ahead, the third quarter shows a significant slowing of overall spending within the industry. Industrial Info Resources tracked $9 billion worth of capital or maintenance projects planned to begin construction in the first two quarters of the year, but the projected spending in the third quarter is expected to only be one-third of this.

Of the $3.1 billion in projects that are currently scheduled to begin construction in the months of July, August or September within the Industrial Manufacturing Industry in the U.S., the most significant spending is anticipated to take place in the Great Lakes region of the country. In total, $1.3 billion of the $3.1 billion in projects scheduled to begin construction are expected to take place in this region, which is by far the largest concentration of project activity for the quarter. This spending will take the form of 108 capital or maintenance projects.

Click on image at right for a breakdown of planned Industrial Manufacturing Industry 3Q12 project starts.

The bulk of the project activity expected to take place will once again be within the automotive sector. Of the top 20 projects, nine projects worth an estimated $961 million will fall within the realm of the automotive sector. A trio of battery projects worth an estimated $460 million, as well as a handful of solar, wind and aircraft projects will also play a significant role in the outlook for total spending within the industry for the quarter.

The third quarter is also the traditional summer period of maintenance and overhaul project activity, especially within the automotive sector. Typically, during the 4th of July time period, manufacturing plants within the Industrial Manufacturing Industry perform semi-annual maintenance activities during this time, which significantly increases the role maintenance projects play in the quarter's spending totals. Over 200 maintenance projects are being tracked within the Industrial Manufacturing Industry during the third quarter this year, representing $365 million worth of maintenance investment.

Since the official end of the recession, companies have focused less on grassroot construction efforts within the Industrial Manufacturing Industry and more on either purchasing existing but closed manufacturing plants that will be retrofit or upgraded to manufacture a new product, or adding to existing facilities but in smaller increments, which has led to smaller capital expenditures. Companies have become very cautious about how, when and where they are willing to allocate capital funds for expenditure, and this has led to decreasing total expenditures for the industry. In addition, with last winter being an extremely mild one for most of the country, many companies got an earlier start on capital efforts this year, which caused more expenditures earlier in the year, but a slowdown of total spending in the third quarter.

Hopefully, this slowdown will be only a temporary situation for the industry. While the shift away from larger numbers of grassroot projects to more renovations, retrofits and upgrades of closed facilities appears to be a trend that is here to stay, expenditures may improve in the coming months as companies evaluate their position in their individual markets. Productivity is on the rise, and hiring has been increasing. Now all that needs to happen is for capital expenditures to ramp back up to the levels where they belong.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, 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.