Manufacturing finally rebounds

Construction spending for manufacturing facilities jumped 31% in the last two quarters. It is forecast to increase 30% or more by the end of next year and will continue to expand into 2007. Nonetheless, the after-inflation value of manufacturing projects two years ahead will still be less than half of the peak level reached in 1998.

Manufacturing remains a troubled sector of the economy, progressively losing market share to the rest of the world. Still, it is a very cyclical industry, and 2005–07 will be a period of rapid growth in the construction of manufacturing facilities.

The recent pickup in spending has included all industries, with an especially large gain in technology markets. This is consistent with other reports that the exodus of high-tech manufacturing to Asia has slowed now that most of the high-volume assembly operations are now located there.

Manufacturers have increased their production capacity only 1.9% in the last two years, while their production volume has risen 9.1%. Capacity utilization hit 77.4% in the winter. A further 7–8% rise in production volume by the end of next year will push capacity utilization to over 80%, which is the usual threshold for a sustained period of capacity additions.