Energy, metals boost industrial spending 18%

SUGAR LAND, TEXAS -- Industrial Info Resource's North American Industrial Project Spending Index reported 18.08% growth in May 2008 compared with the same month last year, although spending is at its lowest point since December 2006.

Additionally, capital and maintenance spending at industrial sites remains high with $352 billion in active projects under way or scheduled to begin construction in 2008.

The index tracks the changes in industrial project spending growth, comparing project spending for calendar years. Industrial project spending growth has, for the most part, declined every month since July 2007 when the index peaked at more than 40% growth. In general, the reduction in growth since July 2007 can be attributed to the cautious attitude being taken by industrial firms when it comes to capital spending. More owners are taking a conservative approach to project spending, leading to more project deferrals. This is true for firms that provide raw materials to sectors experiencing a slowdown, such as those servicing the automotive or residential construction markets.

The pulp and paper industry, with a 44% decrease, and manufacturing, with a 38% drop, are taking the biggest hit in 2008 in terms of project spending, especially in the heavy manufacturing, textile, consumer goods and automotive sectors. In addition, high energy prices continue to marginalize plant operations across all industries, causing owners to cut back on capital spending plans. Natural gas, at more than $12 per million Btu, is at a historic high level in most parts of the U.S.

It is not surprising that oil and gas production, petroleum refining, power and alternative fuels continue to be the leading industries for project spending in 2008. With commodity prices rising and worldwide demand for raw materials up, the metals and minerals industry is also experiencing strong project spending at metals, coal, uranium and phosphate mines, and at polysilicon manufacturing plants and steel mills.

Industrial Info Resources is a marketing information service specializing in industrial process, energy and financial-related markets.