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Manufacturing construction nears peak, declines expected after 2007

By Jim Haughey, Director, Research and Analytics, Reed Construction Data

September 1, 2006

Building Design and Construction

Manufacturing remains a conflicted industry in the U.S.

It's growing faster than the rest of the country's economy—and is expected to continue doing so through 2007—with the usual cyclical boost from strong capital goods investment plus an export boost from rapid foreign economic growth and a relatively cheap dollar that's spurring U.S. exports. However, imports of manufactured consumer goods have continued to expand faster than domestic consumer spending.

When the investment and export booms end next year, manufacturing's share of the U.S. economy will shrink. Facility renovation and space needs will then experience slower growth than other nonresidential construction markets.

Manufacturing construction spending increased 30% during the past year, but very little additional growth in job site activity is expected during this building cycle, according to Reed Construction Data, Norcross, Ga.

The value of manufacturing construction starts declined nearly 50% in the first half of 2006 compared with the same period last year.

Reed Construction Data forecasts show that industrial starts—including warehouses and labs—will decline 18% this year and an additional 15% in 2007.

Nonetheless, the completion of many projects plus inflation will boost manufacturing construction spending 23% in 2006 and another 6.5% in 2007.

Currently, the chemical, electronics, and foods industries are increasing their spending for manufacturing facilities while the motor vehicle industry has already reduced facilities investment.