Industrial control indices surge
Rosslyn, VA—Sales of industrial control products and systems, as measured in the National Electrical Manufacturers Association's (NEMA) Primary Industrial Controls Index, expanded by 4.8% in the second quarter of 2005 (2Q05).
Rosslyn, VA— Sales of industrial control products and systems, as measured in the National Electrical manufacturers Association's (NEMA) Primary Industrial Controls Index, expanded by 4.8% in the second quarter of 2005 (2Q05). Compared to the same period a year earlier, the index increased by 4.6% in 2Q05. Overall, NEMA reports that its Primary Industrial Controls Index has posted year-over-year gains in 10 of the last 12 quarters, and is now more than 20% above the market’s low point observed at the end of 2001.
“These data very clearly indicate a turnaround for an industry that was hurt by the nation’s economic downturn,” says Brian Lego, NEMA's economic analysis director.
In addition, the organization’s Primary Industrial Control and Adjustable Speed Drive Index posted a sizable gain of 5.4% during 2Q05. Though increasing at a slightly more subdued pace of 4.8% when compared to the same period a year ago, the market remains very strong as the index registered a nearly 11% gain in 2Q04. This quarter’s figure marks the second highest reading in the index’s brief history, as well as a 22% gain in sales since 4Q02.
NEMA reports that rising short-term interest rates continue to pose a downside risk for sales of industrial control products and systems. For example, as recently as May 2004, rates for three-month U.S. Treasury bills were below 1%, but have increased by more than 200 basis points since then to 3.3%. With the U.S. Federal Reserve expected to continue raising the benchmark federal funds rate through the next several meetings, the nation’s interest rate environment reportedly is likely to serve as a mild damper on growth for the next several quarters.
NEMA adds that manufacturing activity is expected to remain a positive driver for industrial controls demand over the near term, but not quite to the same degree as in 2004. Capacity utilization rates reportedly have increased strongly since the end of the recession, as the U.S. and global economic recoveries gained momentum in 2003 and 2004. The rebound in manufacturing activity has been strong enough that certain industries are slated to see new capacity additions over the next several quarters, according to NEMA. Nonetheless, the organization adds that, since the U.S. economic expansion has settled into a stable pace of growth, further measurable gains in factory operating rates are unlikely.
In addition, NEMA says healthy demand for industrial machinery and equipment has bolstered demand for industrial automation systems. For example, real business investment in industrial equipment increased by 6.3% in 2Q05. “Output data for industrial machinery indicate an even more robust growth, as production increased 15% on an annualized basis in the second quarter,” says Lego. “Following the boom in industrial machinery production in 2004, output growth is expected to average nearly 7% during 2005 and 2006. Record profits will likely allow producers to replace old equipment or expand capacity, especially since so many companies pulled back sharply on industrial machinery investment during the recession.”
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