ANALYSIS - U.S. manufacturers continue innovating amid slump

By James B. Kelleher

CHICAGO (Reuters) - U.S. manufacturers have taken a beating in the current downturn. Outside of housing and finance, it is hard to think of an industry that has suffered more.

Every measure of the sector's health is flashing red -- from profits and output to plant utilization and employment.

Word from individual manufacturers suggests spending on research and development is falling, too -- though probably not as dramatically as other vital signs.

That's a good thing. Only once during the four most recent recessions -- in 2002 -- has industry-funded R&D fallen faster than industry output, according to figures from the National Science Foundation and the U.S. Federal Reserve.

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"When companies are having a tough time, they cut back on everything, including R&D," said David Huether, chief economist at the National Association of Manufacturers. "But normally the pullback isn't nearly as big as the drop in production."