Signs point to brighter '04 for manufacturing

Manufacturing remains the most depressed construction end market, but a silver lining may at last be appearing among the clouds.

Upon first glance, most of the data looks bad. The current spending level is probably below replacement of obsolete facilities. Usable capacity is shrinking. The utilization of factory capacity has sunk to 72% compared to the 81-82% level usually needed to initiate significant expansion.

No net new capacity has been added in almost two years. Small capacity gains in the industrial production reports are due to design and process improvements in semi-conductor production equipment. No additional square footage was required.

But now the four-and-a-half-year contraction in spending appears to be over. Spending levels have been nearly steady for six months. The post-war restart of the economic recovery has already boosted manufacturing production. Orders and shipments in May and June with the rising trend forecast to accelerate into 2005.

Spending will be 15% higher by next spring and increase another 12% in the second half of next year. However, this rapid turnabout will only push activity back to the already depressed early 2002 pace, which was half of the peak level in 2000.

The added spending expected through late next year mostly will be renovation of facilities stressed by production schedules.