U.S. Spending Slide Expected to Continue in 2009 for Industrial Manufacturing Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--2008 has ended up being a dismal year for the entire Industrial Manufacturing Industry in the United States. While the year began relatively normal for the industry, the combination of a slumping economy, the continued housing crisis combined with the collapse on Wall Street and the rapid decline of the automotive sector placed the industry in dire straits by year's end. Spending has declined dramatically over the last 12 months, and all indications are that this will continue well into, if not throughout, 2009.

Click on the image at right to see a breakdown of 2009 Industrial Manufacturing project spending.

At the beginning of 2008, more than $41 billion in capital and maintenance spending activity was scheduled for the U.S. in the industry. As the year progressed, the actual amount of construction work that occurred dropped to the $23 billion range. Although the number of projects to begin construction in 2008 remained high at just more than 1,000, the amount spent on those projects began to decline as the various sectors that make up the industry adjusted their individual spending according to the overall climate.

2009 has a healthy $35 billion in capital and maintenance work currently scheduled to begin construction between January 1 and December 31. However, many of the larger projects that are currently expected to begin construction will undoubtedly be either delayed or canceled as the year evolves. Companies are guarding their capital and maintenance budgets closely for the coming year given the current economic climate.

The complete collapse of the automotive sector is being seriously felt in the Great Lakes region of the country. Traditionally, this region can be expected to spend $6 billion-8 billion annually, mostly because of the heavy automotive presence and the resulting projects that occur as a result. However, with the future of the automotive sector in doubt as General Motors Corporation (NYSE:GM) (Detroit, Michigan), Ford Motor Company (NYSE:F) (Dearborn, Michigan) and Chrysler LLC (Auburn Hills, Michigan) are all struggling to remain solvent, spending has all but disappeared in this key region of the country. Currently, less than $1 billion in total spending is scheduled to begin construction during 2009 in the Great Lakes region, a significant decrease over past years.

While spending in other regions, such as the Northeast and the Mid-Atlantic regions, is currently making up for the decrease in the Great Lakes, much of that spending revolves around light or commuter rail projects that may not be able to find funding to proceed in these uncertain economic times. With banks tightening their lending requirements worldwide, major projects are expected to suffer.

Light rail and commuter rail projects, by their very nature, and the major costs associated with developing such projects rely on governmental financing as well as private funding to become reality. With the federal government currently propping up both Wall Street and the automotive sector and with President-elect Obama pushing for a new economic stimulus package to help the tax payers in 2009, the source of much of the funding for rail projects is in doubt. Simply put, where will all the money come from when billions upon billions of dollars are being spent saving other industries?

Without that necessary source of financing, many of the major rail projects that account for a large percentage of the proposed spending within the Industrial Manufacturing industry for 2009 will not proceed in the coming year. While these projects will probably not be canceled, they will be delayed until 2010 or beyond if alternate sources of financing cannot be developed.

Other sectors are expected to suffer as well in 2009. The semiconductor and computer sector is currently in the midst of the low end of its cyclical spending routine, so spending in this sector would have been limited regardless. However, sectors such as the plastics & rubber, warehousing & distribution and heavy manufacturing are also seeing declines in planned spending. Larger projects that might have been considered for 2009 are being shelved while companies are spending only what they have to in order to remain operational and competitive. In addition, plant closures are at all-time highs as companies consolidate operations to deal with the current economic climate.

Overall, while the initial spending numbers for 2009 look promising for the U.S. Industrial Manufacturing Industry, it would not be wise to take these numbers at face value at this early a point. Spending is undoubtedly going to decline for the year as the economic situation resolves itself over the coming months. One thing to key in on for the industry will be April 1, 2009, when the Detroit Three are required to have complete restructuring plans presented to Congress as part of the bailout deal approved earlier this month. If GM, Ford and Chrysler do not have well-thought-out, comprehensive and workable restructuring plans to deliver to Congress by that time, they will be required to pay back the bailout cash immediately, which could mean bankruptcy for both GM and Chrysler. If that occurs, it will rock not only the Industrial Manufacturing Industry but Wall Street also, as well as the overall U.S. economy.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.