NEMA’s Motors Shipments Index (MSI) slipped 4.4% during the third quarter of 2010. Although demand is still well below the levels observed just two years ago, shipments have trended higher over the past year and a half have and registered a year-over-year gain of more than 8% during the third quarter. Of the index’s two underlying categories, fractional horsepower motors gained in market demand while integral horsepower motor shipments continued to weaken.
The manufacturing sector’s recovery has tapered off in recent months, with output growth slowing from an average annualized increase of roughly 9% during the past four quarters to 4% during 2010Q3. Indicators such as the ISM and regional surveys indicate the manufacturing sector is still expanding, but corroborate the fact that the sector’s performance has been less robust as of late. Moreover, the winding down of the inventory rebuilding cycle could hamper the industry’s prospects for growth since final demand has yet to stage a full recovery. Exports will likely play a significant role in boosting manufacturing output going forward, but the shaky condition of the global economy poses a downside risk to the sector’s growth.
Over the near term, the Motors Shipments Index is expected to continue its recent up-and-down performance. The initial burst in demand for motors and other types of industrial equipment caused by companies restarting idled factory capacity appears to be losing steam, but incentives offered by the EISA 2007 should bolster demand for energy-efficient motors. The backdrop for investment in industrial equipment such as motors has improved as corporate profits have recovered, short-term interest rates remain very low and balance sheets have been mended thanks to cost-cutting. With that said, however, lingering economic uncertainty and a still-high share of idled factory capacity will keep a lid on business investment for motors and industrial equipment in general.