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.

Gary C. Knapp / AP

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.

"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."

Analysts say it is critical that producers stick to the script and preserve R&D as much as possible. Because once the recovery begins, they will need lots of innovative products in the pipeline if they hope to continue competing against cheaper foreign rivals who, increasingly, cannot be beat on quality.

"Globalization has changed everything," said Debra Van Opstal at the Council on Competitiveness. "So as we come out of the recession, what we want is a really fast deployment cycle of new products and services."

Fortunately, a slew of recent product announcements, many of them focused on sustainability, indicate the industry's commitment to R&D continues.

Hard Times

How bad is it out in factoryland? In a word, ugly. Output from the nation's factories has contracted for four consecutive quarters and analysts now expect manufacturing output to fall as much as 12 percent this year, the worst contraction since 1946.

Nearly 1.7 million workers in the sector — or one in eight — have lost their jobs in the last 18 months alone. Looking for another stat that bad? Only the percentage of U.S. households with mortgages past due or in foreclosure is close.

"To date, the recession in manufacturing is both longer and deeper than any downturn since the Great Depression," said Huether at the National Association of Manufacturers.

So how has that affected R&D spending? It is impossible to say because industrywide data is two years out of date. But a handful of key manufacturers, including Caterpillar

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[CAT  Loading...      ()   ], have said their research outlays will fall this year.

"Anybody who tells you they aren't cutting R&D is lying," said Maurice Taylor, the chairman and CEO of Titan International. In Caterpillar's case, it will spend $1.45 billion on R&D this year, down 15 percent from $1.7 billion last year. But it comes during a year when the bellwether has warned its sales may fall as much as 39 percent, suggesting the company understands it cannot cut too deeply.

A Pipeline Filled With Hybrids

Another encouraging sign has been the slew of recent product announcements from manufacturers like General Electric

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[GE  Loading...      ()   ], Winnebago Industries

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[WGO  Loading...      ()   ] and Caterpillar itself, which suggest the sector continues to innovate despite the slump.

Take Winnebago, the motorhome maker, which operates in a subsector that faces howling headwinds. Winnebago and its rivals expect to ship just 14,100 motorhomes this year -- the industry's worst showing in the 38 years that data has been collected. That is down 50 percent from the 28,300 motorhomes the industry shipped last year and down 80 percent from the 71,800 vehicles it shipped in 2004.

Sales of the industry's biggest vehicles, the bus-like behemoths referred to as Class A motorhomes, are expected to be off even more dramatically. But those motorhomes are the industry's most profitable products and, in normal times, its most popular. So Winnebago is introducing two new motorhomes, the Winnebago Via and the Itasca Reyo, that are essentially big Class A products rolling on top of much smaller, more fuel-efficient and cheaper Class C chassis. Both are expected to be available in a few months.

"You won't find another motor home like it in the marketplace," said Bob Olson, the company's CEO, "and I'm proud to say Winnebago Industries did it first."

The company also has a Class A hybrid concept vehicle, the Winnebago Adventurer, touring the country this summer to test consumer interest. The vehicle is a Toyota Prius on steroids,with a diesel engine and an electric motor that work together to power the vehicle as well as regenerative braking.

Investing For Tomorrow

To be sure, the example of Boeing's

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[BA  Loading...      ()   ] long-delayed 787 Dreamliner carbon-composite plane serves as a reminder that even the best-laid development plans are prone to setbacks.

But the sheer number of innovative products either in the pipeline or about to hit market offers plenty of hope, too.

Douglas C. Pizac / AP

Last week, Caterpillar, the world's largest maker of construction equipment, said it will start making a new line of bulldozers this fall with a diesel-electric hybrid powertrain that reduces carbon dioxide emissions, improves fuel efficiency and increases what Caterpillar calls its "dozing efficiency."

"It's 25 percent more productive if you measure material moved per gallon of fuel," said David Nicoll, a Caterpillar executive.

And General Electric, which puts 6 percent of its industrial revenue back into technology each year, has announced plans to invest $100 million to build high-tech batteries for a hybrid railroad locomotive and other uses.

In a speech this week in Detroit, Jeff Immelt, GE's CEO, challenged other manufacturers to recommit to R&D.

"We need to significantly increase investment in research and development from an all-time low of 2 percent of the GDP," Immelt said. "The only way to sustain a real competitive advantage is to invest in the needs of tomorrow."

GE is the parent of CNBC and CNBC.com.

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