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1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
The problem is worse than it appears. While the rest of U.S. manufacturing has achieved capital expenditure growth from approximately $4,700 to $9,000 per employee for the period of 1988 to 1999, the HPEC industry's capital expenditure growth was comparatively miniscule. SIC 3483's expenditures per employee fluctuated between $1,000 to $2,000 per employee from 1988 to 1997 before increasing to approximately $3,000 per employee from 1997 to 1999.
Capital expenditures per employee have been statistically supported by the falling employment in this industry, especially since the mid-1980s. Gross capital expenditures have fallen sharply since 1988, but the accompanying declining employment numbers have masked the event, allowing perceived investment per employee to range between $1,000-$2,000 per employee. If a consistent level of employment had been maintained, expenditures per employee would have dropped steeply between 1988 and 1997 (See Chart 7 below).
Chart 7: Capital Expenditures per Employee 1977-1998
(All Manufacturing vs. SIC 3483)
The modest recovery in capital expenditures starting in 1997 did raise investment per employee by $1,000 per employee. However, there were approximately 31,000 fewer employees in 1997 compared to 1988, which allowed a relatively small increase in capital spending to raise the investment per employee by 50 percent. In addition, the effect of inflation from 1988 to 1999 would also negate the effect of the increased spending in 1997.
BXA Investment in Operations Data - HPE and HPEC Industries
Twenty-seven organizations invested a total of $183 million (ranging from $23.5 to $41.8 million per year) in their operations between 1995-1999 (See Chart 8 below). Most of these outlays provided new machinery and equipment as opposed to expansion of facilities or construction of new plants. For machinery and equipment in the 1998-1999 period, most of the increase in capital expenditures can be attributed to two firms, one in 1998, and the other in 1999.
Investment in operations, according to BXA industry survey data, was much higher than the Census numbers indicate. The investment per employee data (See Chart 9 below) is, in some cases, twice as high as that found in the Census Bureau report. The most likely reason is that the Census Bureau does not count new facilities owned by the Federal Government but operated under private contract by private companies.
BXA received submissions from several government-owned contractor-operated (GOCO) operations, some with substantial investments that may not have appeared on Census submissions. In addition to the possible differences in the reporting of investment figures, the universe of respondents differs. While there is overlap between the two data sets, there are also differences that may have affected the investment totals.
24 Ammunition (Except Small Arms) Manufacturing, 1997 Economic Census, US Census Bureau Report (http://www.census.gov/prod/ec97/97m/3329g.pdf).
Chart 9: BXA Survey - Investment in Plant, Machinery, and
Investment in Plant, Machinery, and Equipment without large one-time 1998 and 1999 investments
Source: U.S. Department of Commerce, BXA Industry Survey
Survey respondents' capital expenditures fell into two areas: investment in plants and investments in machinery and equipment. The rationales for investments varied from company to company and in many cases companies reported multiple reasons for capital expenditures. Many investments can serve multiple purposes. For example, an upgrade in technology can add both new capability and improve productivity.
Organizations cited three primary reasons for investment in plants: adding new capability, complying with environmental and safety regulations, and expanding plant capacity (See Table 8 below).
Since demand for HPES and HPECS has declined in the past 10 years, it is unusual that expanding capacity would be one of the top three reasons for investment in plants. However, in unique instances such investments were justified. One firm won a contract that was large enough to amortize the cost of investment in capacity expansion over the life of the contract. Another was the beneficiary of a competitor's departure from the market and could justify expanding capacity. A third firm's increase in capacity was driven primarily by the need to replace old equipment, with the expansion of capacity as a secondary benefit.
The respondents also gave various reasons for investing in machinery and equipment. Replacement of old equipment was the most popular response, with 70 total mentions (See Table 9 below). Adding new capability was the next most popular reason, with 67 references. The third most frequent reason was upgrading technology followed by improving productivity. As with the investment in plants, respondents often chose multiple reasons for their individual investments.