Investments, slower growth likely for industrial controls

Staff -- Control Engineering, 9/1/2006

National Electrical Manufacturers Association's (NEMA) primary industrial controls index dropped slightly from first-quarter 2006 to the second quarter, suggesting the rate of growth is slowing, compared to faster growth over the last two years. The industrial controls index increased 6.5% over the same period a year ago and has risen 11 consecutive quarters on a year-over-year basis. The organization suggests that to maintain productivity, businesses may have to invest in new facilities, machinery, and equipment.

The broader market index, the primary industrial controls and adjustable speed drive index was higher in the second quarter, reaching the highest level in its five years of existence. Slowdown signs are evident, but overall market conditions remain strong compared to a year ago, as the index rose 9.3% on a year-over-year basis.

NEMA issues the industrial control business indices quarterly. The primary industrial control index represents U.S. shipments for motor starters, contactors, terminal blocks, control circuit devices, motor control centers, sensors, programmable controllers, and other industrial control devices, a $2.6 billion market. In 2001, the NEMA data collection program was expanded to include adjustable speed drives, a key energy-saving industrial component.

NEMA reports demand for industrial controls and adjustable speed drives is expected to remain healthy over the near term, since record corporate profits allow for additional spending on capital equipment, and relatively healthy economic conditions abroad stimulate foreign demand for U.S. manufactured goods. Still, many plants are running at almost full capacity and resources are stretched thin; recent data show aggregate capacity utilization for the manufacturing industry hit a six-year high of 81.1%, while 40% of producers are running factories in excess of 85% capacity. NEMA says businesses may have to invest in new capital such as facilities, machinery, and equipment and replace worn-out equipment to maintain current levels of productivity.

Industrial controls and other manufactured goods will continue to see solid demand, says NEMA, but with less growth than the last three years. Energy prices remain close to nominal dollar record highs amid strong global demand. Inflation is also a concern. The electroindustry business confidence index for current North American conditions remained above the 50-point growth threshold for a 40th consecutive month, though July was the third month of decline. www.nema.org/econ/icbi/