Manufacturers add capacity, increase productivity
By Daryl Delano -- Modern Materials Handling, 2/1/2000
Trends in manufacturing and non-manufacturing activity in 2000 will likely contribute to strong demand for materials handling hardware, related software, and systems.Manufacturing firms in the United States invested in new equipment at a record pace throughout most of the past decade. Between 1993 and 1998, U.S. business investment in new equipment and software grew at an average annual rate of 11.7%. And growth over the first three quarters of 1999 was at an annualized rate of almost 14%.
Corporate America invested a generous amount of money during most of that period in new manufacturing, warehouse, and distribution facilities. Much of this frenetic activity created additional demand for conveyors, industrial trucks, automatic data capture technology, and the ever-more-sophisticated inventory control software systems.
Not coincidentally, manufacturing productivity grew rapidly, particularly over the past 2 yr. Productivity in industrial firms rose at an estimated 5.0% rate during 1997 and 4.8% in 1998. And through the first three-quarters of last year, manufacturing productivity was improving at a 6.2% annualized rate.
Generally, business investment in new equipment and computer software has been the principal enabler of sharp improvements in productivity trends during the 1990s. There's no doubt that investment in inventory control systems, bar coding systems, sortation conveyors, and a host of other materials handling products and services has played a major role in all of this.
Overall production capacity in the nation's manufacturing sector expanded by 4.2% between November 1998 and November 1999. This new productive capacity came on board as a result of both investment in new equipment and software as well as the addition to - and reconstruction/retrofit of-existing manufacturing and distribution facilities.
The national availability rate for industrial space in large buildings (100,000 sq. ft. or larger) declined from 8.3% during the second quarter of 1999 to 8.1% in last year's third quarter. The vacancy rate during the July-September period of 1999 was also 0.3% lower than during the third quarter of 1998. A CB Richard Ellis (a commercial brokerage/real estate information firm) survey measures the supply of available space in manufacturing plants and warehouses for both existing and under-construction buildings. The survey documented that there were 28 million sq ft of industrial building completions in the July-September period of last year. This should bode well in the immediate future.
The industrial sector of the nation's economy will continue to grow at a moderate pace this year and next. Business investment in new equipment will expand at a healthy rate again in 2000 and 2001. However, we're unlikely to experience the double-digit annual gains registered over the last half of the '90s.
Spending for new industrial buildings-particularly warehouse facilities-should pick up this year. And spending for new distribution and warehouse centers needed to serve the exponential growth in e-commerce will provide further impetus to the kind of new construction that is particularly conducive to the sale of materials handling equipment and supplies.
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