Clouds Darken Over the Smokestack Sector

"Declining demand throughout the consumer and business sectors will hit industrials hard," say the report's authors, Barry Jaruzelski and Matthew Ericksen.

The manufacturing sector has already lost 604,000 jobs since the start of the recession in December 2007, according to the Labor Department. ADP's horrifying employment report on Wednesday, combined with recent layoff announcements from the industrial sector, promises more economic pain ahead.

Panos Kouvelis, a professor at Washington University's Olin Business School, who specializes in manufacturing and management, says what's coming out of the industrial space is actually "old news" that started to take shape at the front-end of the economy in September, and has now made its way down.

"It's more or less along a supply chain that you go from the retailers or customer-oriented businesses and then you start going backwards and hear from the suppliers," says Kouvelis. "So, if you think the retailers will recover in six months to a year, then these guys sitting at the back end will take another six months to a year after that."

The stimulus package to be unveiled by incoming president Barack Obama, along with all the other fiscal and monetary policies already installed, and the president-elect's plans to boost alternative energy, will undoubtedly help many players in the industrial space. In addition, business-tax cuts could help keep costs down as these projects get underway.

But of course, the industrial area has vast array of players who make and do widely different things, and the outlook can vary dramatically even within the same subsector. For instance, Nucor (NUE Quote), U.S. Steel (X Quote) and Alcoa all operate in the metals space. But Alcoa makes aluminum products that are used mostly for consumer goods, whereas the other two make steel products used for building, heavy machinery and the like.