Process industries booming; other manufacturing stagnant

August 11, 2010

Manufacturing construction is a mixed market. Construction spending for “under a roof” manufacturing is the same as it was two years ago (allowing for project cost increases), and spending slipped 3-5% since last fall when manufacturers began to cut production to trim surplus inventories. However, construction spending for chemical, including refinery operations, is nearly 50% higher than a year ago, with most gains made during the last few months. Chemical construction spending is up 160% from the previous peak in manufacturing construction spending in 2001. Current spending for the rest of manufacturing is down 26%.

Investment in “under a roof” factories is boosted by a rapidly declining U.S. dollar, which makes imported goods relatively more expensive, although that's not enough to offset the shifting of U.S. manufacturing operations out of the country. The outlook for this manufacturing sector is for construction spending to dip marginally through next year in spite of an average U.S. economic growth rate.

In contrast, large chemical process facilities, struggling to meet demand after years of minimal investment in added capacity, are beginning to invest heavily. Starts of new manufacturing facilities have doubled in the first six months of 2007 compared to the same period last year, according to Reed Construction Data.

The recent investment surge is concentrated in energy industries, which include ethanol distillation plants and refinery upgrades. The outlook is for continued—but more modest—growth in construction spending for these types of facilities.

         
 

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