NEMA’S industrial control indexes show economic rebound

Rosslyn, VA—Sales of industrial control products and systems increased slightly in 2005’s first quarter (1Q05), which reflected a 1.4% gain in the National Electrical Manufacturers Association’s (NEMA) Primary Industrial Control Index.

By Control Engineering Staff May 17, 2005

Rosslyn, VA— Sales of industrial control products and systems increased slightly in 2005’s first quarter (1Q05), which reflected a 1.4% gain in the National Electrical Manufacturers Association’s ( NEMA ) Primary Industrial Control Index.

While this increase for 1Q05 represents only a partial rebound from a 3.8% decline in the previous quarter (4Q04), the index did increase just above 4% over the same quarter a year earlier (1Q04). In addition, though the index still remains well below its peak in 2000’s first quarter, it has increased more than 14% from its trough at the end of the latest U.S. economic recession, and has posted year-over-year gains in nine of the last 12 quarters.

‘Overall, this reflects a nascent rebound for an industry that was hit hard by the nation’s economic downturn,’ says Brian Lego, NEMA’s economic analysis director.

Similarly, the organization’s Primary Industrial Control and Adjustable Speed Drive Index received a seasonal bump in 1Q05, increasing slightly more than 3% over 4Q04. Also, the index expanded nearly 3% in 1Q05 compared to 1Q04, and has remained above the 100 level for the past five quarters.

Despite its index’s first-quarter gain, NEMA adds that interest rates have become a visible headwind for sales of industrial control products and systems. For example, rates for three-month treasury bills have increased over the past year, accelerating significantly since 2004’s second half. Indeed, rates were below 1% as recently as May 2004, but managed to finish 1Q05 nearly 200 basis points higher. Because short-term interest rates are only expected to move higher, as the U.S. Federal Reserve continues to pursue a “measured” pace of monetary tightening via increases in the federal funds rate, NEMA adds the overall interest rate environment is likely to serve as a mild damper on economic growth for the next several quarters.

Other factors will have a mixed impact on the index going forward, adds Lego. ‘Capacity utilization rates have increased strongly since the end of the recession, as the U.S. and global economic recoveries gained momentum in 2003 and 2004,’ he says. ‘While the factory operating rate is expected to rise above 79% for the first time since 2000, it will likely begin to level off in 2006, and possibly even decline as the pace of economic expansion decelerates.’

However, production of industrial machinery is expected to provide more of a boost to industrial control products, according to NEMA. Preliminary data indicate industrial machinery output increased at a 1.4% annual rate in the first quarter of 2005, following a 14% gain for all of 2004. With corporate profits still strong, NEMA adds that companies are expected to ratchet up investment to replace old equipment or expand capacity, particularly since spending on industrial machinery fell so sharply during the national economic downturn.

NEMA issues its Industrial Control Business Indices quarterly. The Primary Industrial Control Index represents U.S. shipments of motor starters, contactors, terminal blocks, control circuit devices, motor control centers, sensors, programmable controllers, and other industrial control devices. The Primary Industrial Control and Adjustable Speed Drive Index, which adds and examines a key energy-saving component, reportedly provides a broader measure of the industrial control marketplace. Industrial control equipment, a $2.6 billion U.S. market, is primarily used in industrial applications for the control or regulation of power utilization apparatus, including motors.

These indices represent monthly sales information collected by NEMA from its members, the major industrial control manufacturers in the U.S. market. Detailed information is only available to NEMA members. The data underlying these indices represent more than 90% of U.S. sales of this equipment. Domestic shipments of electrical products within the NEMA scope exceed $100 billion.

Control Engineering Daily News Desk
Jim Montague, news editor
jmontague@reedbusiness.com