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ing jobs has disappeared over the past 10 years. By 2014, one out
of every 25 of today’s manufacturing jobs will vanish.
Employment was typically considered a good indicator of which
subsegments were growing the fastest; this is no longer true
mostly due to increases in productivity and better technology.
The largest put-in-place construction subsegment, chemical,
does not have the largest percent of manufacturing employees.
The chemical subsegment accounts for 27 percent of manufac-
turing construction but accounts for 6 percent of employment.
Increases in put-in-place construction can occur despite losses
in manufacturing employment. This is evident when looking at
the primary metals, furniture, miscellaneous, paper and chemi-
cal subsegments. The fabricated-metal subsegment was the only
segment that experienced increases in employment and decreas-
es in construction.
Predicting Spending
To predict put-in-place construction spending in the manufactur-
ing segment, several key economic indicators must be considered.
The main economic indicators that influence the manufactur-
ing market are gross domestic product, producer price index,
materials and components for construction, productivity, gov-
ernment consumption, a time lag of one year, and a time lag of
two years. The t-tests, or statistical tests, for all of the indicators
are above 2.36, making them statistically significant in predict-
ing the power market.
Other important indicators for manufacturing include pur-
chasing managers index (PMI), industrial production and capac-
ity utilization (IP/CU) and productivity.
Economic activity in the manufacturing sector expanded in
July for the sixth consecutive month, while the overall economy
grew for the 69th consecutive month, according to July’s
Manufacturing ISM Report On Business. The PMI for July regis-
tered 53.8 percent, a 2.2 percent decrease when compared to the
June reading of 56 percent. A reading above 50 percent indicates
that the manufacturing economy is expanding, while anything
below 50 percent indicates that it is generally contracting.
A PMI in excess of 41.9 percent, over a period of time, gener-
ally indicates an expansion of the overall economy. The PMI for
June indicates that both the overall economy and the manufac-
turing sector are growing. The past relationship between the
PMI and the overall economy indicates that the PMI average for
January through July (53.1 percent) corresponds to a 3.5 percent
increase in real GDP.
Growing Industries
In July, 10 industries reported growth:
■ Wood products
■ Furniture and related products
■ Food, beverage and tobacco products
■ Miscellaneous manufacturing
■ Paper products
■ Textile mills
■ Chemical products
■ Computer and electronic products
■ Nonmetallic mineral products
■ Primary metals
Boosting Production
Manufacturing industrial production for June rose 0.6 percent
to 115.3. It was unchanged in May. Manufacturing industrial
production in June was 1.6 percent more than at the same
time a year ago. Manufacturing industrial production meas-
ures the real output of the manufacturing industry. Capacity
utilization for manufacturing was 80.3 percent in June vs. 79.9
percent in May.
Manufacturing capacity growth was 2.3 percent over the year.
The average capacity utilization from 1972 to 2006 was 79.8 per-
cent. It reached its high from 1994 to 1995 at 84.6 percent and
its low was reached from 2001 to 2002 at 71.6 percent.
In June 2006, manufacturing capacity utilization was 80.8 per-
cent. Capacity utilization measures the amount of maximum
output that is produced. The higher the capacity utilization rate,
the more likely that capacity must be added.
Productivity in the manufacturing sector grew 1.6 percent in
the second quarter after an increase of 1.7 percent in the first
quarter. It grew 2.9 percent from the same quarter a year ago.
This growth came from durable goods, which increased 4.7 per-
cent while productivity in nondurable goods fell 1.9 percent.
Increases in productivity typically imply less construction
activity. However, after long periods of increases in productivity
and advances in technology, construction will increase.
Productivity is a measure of how effectively inputs are convert-
ed into output.
The manufacturing put-in-place construction segment is
expected to continue growing and to finally surpass its previ-
ous high from 1998 in 2008. This increase will continue
despite manufacturing employment losses and off-shoring.
The PMI, IP/CU and productivity indicators support this con-
tinued growth.
For additional information on the manufacturing segment, stan-
dard construction market forecasts or for custom reports on a wide
variety of construction-related topics, visit www.fminet.com. ■
Heather Jones is a construction economist in the research
services group at Raleigh, N.C.-based FMI Corp. She can be
reached at hjones@fminet.com.
OCTOBER 2007 ■ CONSTRUCTION TODAY ■ 21