The Industrial Market for Cable Assemblies:
Following the Lead
By David Pheteplace, Bishop & Associates Inc.

The ups and downs of the industrial market for cable assemblies can be traced directly to the industries this segment serves, and to government spending, which supports a number of key industries. The industrial segment, by definition, is selling to other businesses and governments. When these other industries are not doing well, industrial manufacturers are not doing well, and conversely, on the up side.

Automotive production has a very large impact on the industrial segment. The Organization of Motor Vehicle Manufacturers (OICA) estimates that the automotive industry employs approximately nine million people for every 60 million vehicles that are produced each year, which equals 5% of the world’s total manufacturing employment (in 2005 terms). The OICA also estimates that each of these direct jobs results in more than five indirect jobs, which yields an additional 50 million jobs worldwide. Vehicle manufacturing results in industry revenues of approximately $3 trillion, and combined with vehicle use, contributes over $580 trillion to government revenues worldwide. On the production side, the automotive industry spends more than $120 billion annually for research, development, and production, which directly impacts the industrial segment. 

According to OICA, worldwide vehicle production increased 25.8% in 2010 (from 61.7 million units in 2009 to 77.6 million units in 2010). This incremental increase of 15.9 million vehicles may lead to additional spending by the automotive companies of $22 billion for industrial production equipment (including the requisite cable assemblies). It also means an additional $6.4 billion was spent on automotive wire harnesses worldwide, which also required industrial equipment with interconnect content. As further trickle down, it also means that the automotive industry hired/rehired an additional 106,000 people, which created jobs for an additional 550,000 people outside the automotive industry. More jobs yields more people that can buy cars, refrigerators, homes, consumer products, etc., which promotes the need for more industrial equipment.

Home construction played a major role in bringing the economy out of the 2001/2002 recession, although excessive home building (and improperly financed sales) was also a major factor leading to the 2009 recession. New home sales hit a high in the U.S. in 2005 at 1.3 million homes. In 2010, 322,000 new homes were sold. The number for 2011 is expected to be in the 300,000 range.

New home sales impact everything from logging and heavy construction equipment to the industrial production of electrical outlets, appliances, toilets, and nail guns. Using an estimate of 12 jobs created for every home built in one year, the industry went from a job creation number of 15.4 million people in 2005 to 3.6 million jobs in 2010, more than a 75% reduction. If each home built utilized an average of $50,000 of industrial production equipment, home construction stimulated a demand of $800 million in 2005, which declined to $180 million in 2010. Infrastructure build-out, of course, would add substantially to these numbers. Total construction expenditures in 2010 by private industry was $6.1 billion.

From a worldwide perspective, China has been on a building boom for more than a decade. With a population exceeding 1.3 billion, more than 600 million people now live in urban areas, as a result of their industrial growth. In 1980, 80% of China’s population was rural, so the building growth has been staggering in the industrialized areas. With an average apartment size of approximately 500 square feet, China has had to construct over 200 billion square feet of residential space to accommodate its industrial expansion. This residential construction has resulted in a boom for their industrial market sector.

Government spending has a major influence on the industrial sector. In the U.S. in 2010, state and local governments, usually with federal funding for a portion of the cost, spent $275.5 billion on construction projects ranging from hospitals and schools to highways, sewage treatment plants, and water supply plants. 

The following chart shows the 2010 U.S. spending for construction by major category (data from the U.S. Census Bureau).

Each of these areas of construction generates business in the industrial sector. Besides construction equipment, power generation, sewage treatment, and water supply are all part of the industrial sector. They also create business for other areas, such as industrial controls and HVAC controls.

Spending by central governments generates similar levels of business, or more, for the industrial sector.  Stimulus spending in 2009 and 2010 was substantial by the U.S. and Chinese governments. Although social programs were a large part of the U.S. stimulus program, both governments spent billions of dollars on building or improving infrastructure projects, such as roads, bridges, rail, and power generation. According to the National Geographic, China’s thirst for electric power fuels the construction of one coal-fired electricity- generating plant per week, with most being outfitted with the latest pollution-reducing technology. China also has ambitions to be the largest generator of green power, which it currently is, and the largest producer of hybrid and electric vehicles. Clearly, the opportunities for industrial cable assemblies will be significant in China over the next decade.

The following factors will influence the value of the industrial cable assembly market in 2011:

• Most Western economies will generate a GDP growth rate of 2% to 3%. China and India’s GDP growth is expected to be between 8% to 9.5%.

• Residential construction of new homes is expected to be stagnant in most Western economies.

• Automotive sales are expected to increase 5% to 6%.

• Government spending on infrastructure construction will be down in the Euro zone and North America.  In China, government spending will be higher.

Although the world economy is still fragile, industrial cable assembly sales are expected to grow 5% in 2011.  Bishop & Associates expects the worldwide market for these cable assemblies to be approximately $12.2 billion this year. The highest growth rate is expected in China, which will be in excess of 15%. The largest market by region will be Europe, with industrial cable assemblies amounting to $4.5 billion in value.