News

Print page

Email page

Posted On: 11/09/2005

NEMA's Industrial control business indices continue to show robust market conditions

Sales of industrial control products and systems, as measured in NEMA's Primary Industrial Controls Index, increased 3 percent during the third quarter of 2005. Compared to the same period a year ago, the index jumped by 5.5 percent. With its eighth consecutive quarterly gain, NEMA's Primary Industrial Controls Index is now a full 24 percent above the market's recessionary low point. "Consequently," says Brian Lego, NEMA's director, economic analysis, "these data indicate a period of increasingly robust growth for an industry that was hit hard by the protracted weakness in U.S. manufacturing activity."
     
The Primary Industrial Control and Adjustable Speed Drive Index gained 4.2 percent between the second and third quarter of 2005. In addition, sales growth accelerated for this market segment, as the index posted a 9.6 percent gain when compared to the third quarter of 2004. "The most recent quarter's reading nearly eclipsed the index's all-time high and represents a 27 percent increase in overall sales since the close of 2002," says Lego.

While not having much of an impact on either index up to this point, rising short-term interest rates will likely pose somewhat of a downside risk for industrial automation and control equipment. For example, only 18 months ago the yield on 3-month Treasury bills was below 1 percent, but has since increased by more than 300 basis points to 3.9 percent. With the Fed expected to continue raising the benchmark federal funds rate until next year, the interest rate environment should dampen growth.

Manufacturing activity is expected to remain a positive driver for industrial controls demand. The factory-operating rate increased to its highest point in five years during the third quarter of 2005 and total manufacturing output has been on the rise in the last nine quarters. In fact, manufacturing activity has rebounded strongly enough that certain industries are slated to undergo capacity additions. Moreover, the manufacturing sector is expected to see a re-acceleration in output during 2006 as hurricane-related rebuilding in the Gulf Coast begins in earnest.
  
Healthy demand for industrial machinery and equipment has bolstered demand for industrial automation systems. After an unexpectedly weak second quarter, in which real business investment in industrial equipment declined measurably, this measure jumped more than 20 percent during the third quarter, marking the largest one-quarter jump in over a decade. "There was a pullback in industrial machinery production during the third quarter, but this is expected to be temporary," says Lego. "Indeed, output growth is expected to average more than 6 percent during until late 2007 as domestic companies, many of which are seeing profits soar, replace old equipment or expand capacity."
  
NEMA is the leading trade association in the United States representing the interests of electroindustry manufacturers.  Founded in 1926 and headquartered near Washington, D.C., its 400 member companies manufacture products used in the generation, transmission and distribution, control, and end-use of electricity.  Domestic shipments of electrical products within the NEMA scope exceed $100 billion.