For the second year in a row, Industrial Info Resources forecasts an increase in U.S. and Canadian spending on pipe, valves and fittings (PVF). Despite recessionary clouds on the horizon, the forecast calls for $17.4 billion in spending for PVF in 2023, compared with $16.3 billion in 2022.

The 2023 forecast is the highest level since 2019, which was followed by a two-year spending dip due to the economic downturn largely caused by the COVID-19 pandemic.

In terms of first-quarter 2023 project starts with PVF equipment needs, industrial manufacturing easily leads the way, followed by oil/gas production and power. 

Industrial manufacturing encompasses a wide swath of projects, including massive transportation systems, data centers, distribution/warehousing buildings and automotive factories. 

A faltering economy, looming recession and massive governmental spending did little to slow planned industrial manufacturing project activity in 2022, but some adjustments will likely be made in 2023. Nearly 3,500 projects are currently planned for the United States and Canada, representing in excess of $200 billion in planned spending. 

However, multiple global economic issues may come home to roost in 2023, causing a slowdown in projects reaching construction.

Four key sectors are expected to drive spending in North America throughout 2023. The automotive, semiconductors and computers, data centers and transmission systems sectors will account for most spending in 2023. While the balance of the sectors that make up the industrial manufacturing industry are also seeing significant spending, these four key sectors are currently driving the industry.

Automotive Sector: EVs

The coming planned project activity in the automotive sector is of little surprise. The conversion from fossil-fuel vehicles to electric vehicles (EVs) has been coming for quite a while and is well-publicized. Virtually all the capital activity planned in 2023 within this sector revolves around that conversion. 

Assembly plants are being retooled to make EV models, new plants are being planned to produce the parts that cannot be produced at more traditional automotive parts plants, and heavy investment is being made on the battery side with multiple new lithium-ion battery plants in the works. 

In December, the Biden administration announced the Department of Energy was issuing a $2.5 billion loan to Ultium, a joint venture of General Motors and LG Energy Solutions, to finance the construction of new lithium-ion battery cell manufacturing facilities in three states for use in EVs.

This sector is expected to remain strong throughout 2023 and beyond. The conversion to EVs will finalize its first phase by 2025; the second phase will begin where more models are planned. The industry has proclaimed that by 2035, 70 percent of the vehicles produced will be EVs on a global scale. This will require several years of heavy investment to accomplish in North America and globally.

Semiconductors and Computers: CHIPS Act

The semiconductor and computer sector is another one where the issues facing it have been well-publicized. Over the past several years, there has been a massive shortage in semiconductors globally brought on by poor order management, diminished supplies and the COVID-19 pandemic. To solve this issue, investment is required, and North America is poised to be the beneficiary of a large portion of this investment.

The sector is planning $84.6 billion worth of projects in North America in 2023. This is being helped by the passage of the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act), which provided $52 billion in incentives for semiconductor companies to create or expand operations in the United States. 

The need for a stable semiconductor supply outside of Asia, especially outside of China or its sphere of influence, is paramount to a thriving semiconductor industry on a global scale. Many semiconductor companies have decided North America is where they should invest, with new plants and expansions planned in Arizona, Texas, New York, Ohio and several other states.

The goal of this expansion is to provide a stable chip supply not only for North America, for which this is a national security issue but also globally by spreading manufacturing out somewhat. North America used to be a hub of semiconductor manufacturing, but most of that manufacturing moved to Asia over the years. 

With the CHIPS Act and the desire to move from under the influence of China, semiconductor manufacturing is returning to the United States once again in the coming years.

Data Centers: Saturation Concerns

The data center sector is the third key project spending area. This sector proved its worth during the pandemic when the entire world was forced to work and learn remotely due to COVID-19. 

Data center project activity has been quite high for several years now as societies increased their use of social media and increased shopping online during the pandemic, making the data center a central part of life. For 2023, $32 billion in data center projects are planned for North America. 

Saturation of the data center market is a growing concern. The rapid expansion of this sector recently has experts wondering when things will slow down. It is likely that in 2024 or 2025, that slowdown will occur, but for 2023, project activity should remain high in North America. 

There is also the possibility that activity in North America could increase as the war in Ukraine continues. Given the energy issues facing Europe, data centers, which are energy hogs, may be cut from budgets in Europe and potentially planned for North America instead.

Transportation Systems: Inland and Deepwater Ports

The final sector that is expected to see significant spending in 2023 is transportation systems. On an annual basis, this is the most consistent sector in terms of total investment. Freight and passenger rail, inland/deepwater ports and airport infrastructure require high spending levels.

For 2023, much of this work would revolve around inland and deepwater ports. Adding capacity at North American ports is being prioritized to alleviate some of the delays in offloading and onloading cargo ships that have fueled much of the supply-chain crisis.

While important, rail projects often are expensive to plan, develop and construct. The development time on any passenger rail line is measured in years, as these lines often cross county or state lines and must deal with multiple, if not hundreds, of property owners and permitting issues.

Energy infrastructure at airports is a national security issue as a reliable power supply is necessary for any airport. Upgrading, expanding or adding energy infrastructure is an important part of any airport’s master plan, especially as they move away from fossil fuels.

Inflation, Possible Recession Impact

The balance of the manufacturing industry’s sectors will contribute to total spending, albeit in smaller capacities. These sectors include distribution and warehousing; heavy manufacturing; housing, building products and furniture; and education, hospital, prison, military base and public infrastructure. 

The bottom line for North America’s industrial manufacturing industry is that an abundance of project activity is planned for 2023. Traditionally, if $200 billion of project activity is slated for a coming year, maybe $120 billion worth would reach the construction stage during that time.

However, given the overall economic situation — including massive inflation and a possible recession — it is more likely that we will only see $90 billion to $100 billion in projects reach construction in 2023. More project activity will be delayed or canceled in 2023 than what would be normally expected. However, the spending total for the year should be rather significant, regardless of what gets delayed or canceled.