Manufacturing spending growth slows to 10% in '06

Manufacturing construction spending increased 22% last year but is expected to increase only about 10–11% in 2006 and 2007. The demand for manufactured goods will continue to grow faster than the economy, largely due to 7–8% annual growth in goods exports.

The year started off weak, with the value of construction starts down 52.4% in the first two months compared to last year in the Reed Construction Data project data file.

Manufacturing capacity utilization rose to 80.1% in January, the usual threshold for expanded factory capacity investment.

But the pattern of utilization by industry suggests that capacity additions will be less than an 80% plus utilization usually generates.

Four of the industries that usually spend the most on facilities are all operating under 80% capacity.

The aircraft industry is expanding rapidly now but is operating at a 72.8% utilization rate. Facility expansion in the chemical (76.2%), motor vehicle (78.9.9%), and electronics (78.9%) industries is being restrained by surplus capacity or significant capacity under construction in other countries.

The 84.0% operating rate for primary metals is below the long-term average operating rate in this industry. The 91.5% operating rate in the petroleum industry is similarly below the sustainable operating rate, and capacity now shut down in the Gulf of Mexico will reopen soon.

The best prospects for capacity expansion investment are in the electrical (89.9%), plastics (89.2%), machinery (83.8%), and food (81.9%) industries.