Capital Spending Remains Strong

Despite recent events that have negatively affected the industrial manufacturing industry, such as the subprime mortgage disaster, rising gas prices and an automotive sector in turmoil, there is some good news to start the New Year.

Industrial manufacturing enters 2008 with projected spending similar to that of last year. Industrial Info Resources (Sugar Land, Texas) forecasts that capital and maintenance spending numbers entering this year are almost identical to those seen at the beginning of 2007. More than 900 projects having a combined investment total of $41.8 billion are expected to begin construction this year, only slightly lower than the $43 billion in anticipated spending last year.

As 2007 came to a close, the final spending numbers for last year finished in the $65 billion range, a number that can easily be reached this year as well, provided some things develop as they did last year. Some shifts in spending are anticipated, however, mainly in who will be more likely to be spending the big bucks in the coming year.

For example, the automotive industry is a good place to look for increased spending numbers. When foreign automakers grabbed a 51 percent market share last July to take charge of the U.S. automotive manufacturing landscape for the first time, many were still shocked to see the shift take place. Despite continual restructuring efforts among the Detroit Three, ongoing annual investments are necessary if these automakers are going to recapture their percentage of market share that the foreign automakers threaten to take over permanently.

Radical restructuring (and the capital spending associated with it) is the tune of the hour as the American automotive industry is essentially being forced to make major, drastic changes in how it runs its businesses or risk elimination from the auto-manufacturing horizon. On the flip side, foreign automakers continue to make strategically sound investments in North America on an annual basis, and this will continue into 2008.

There may also be some shifts in spending within the transportation-systems sector. Marine spending continues to rise in North America as foreign ports are continually applying pressure for the import/export dollar. The Asian ports have traditionally been the chief competitor for the American ports, but increasingly the South American ports are entering the picture as players in the game. This assuredly will mean that additional capital investment will be required at ports in North America, especially in the West Coast region and in Mexico.

The rail sector is expected to see increases in spending as well. The U.S. subway system, especially in New York, Boston and Chicago, is in desperate need of modernization, and 2008 might be the year that investments begin. In addition, we can expect an increase in freight-rail spending nationwide as freight-rail companies take advantage of higher gas prices to increase the amount of cargo they are transporting.

Some of the key locations to keep an eye on during the coming year are the Northeast, Great Lakes and West Coast regions in the U.S., the Western Canada region and Mexico. All of these areas are major spending hubs for automotive, rail and port projects and as they flourish, so does the entire industrial manufacturing sector. In addition, the Southeast region in the U.S. is also emerging as a player in the automotive industry because of increased foreign automaker investments, so it warrants keeping a close eye on too.

Despite the turmoil of the later half of 2007, the overall industrial manufacturing industry has weathered the storm in fine shape. Spending numbers remain on part with the massive investments of last year and, with potential refocusing of further investment into key areas being imminent, 2008 has an opportunity to eclipse last year’s spending totals by year end.

We’ll maintain a close watch on the spending habits in these and other key sectors within the industry as the year progresses.

Tony Morrison

Publisher