Demand for Industrial Controls Increases During the Second Quarter of 2010

Aug. 24, 2010
Rosslyn, Va.-based NEMA’s Primary Industrial Controls Index increased 6.4% in the second quarter of 2010 versus the first quarter

Rosslyn, Va.-based NEMA’s Primary Industrial Controls Index increased 6.4% in the second quarter of 2010 versus the first quarter. Overall, the index has registered four consecutive quarter-to-quarter increases and is now 24.8% above its year-ago level—representing the largest year-over-year percentage gain since late 1992. However, even with this improvement, inflation- and seasonally-adjusted shipments remain more than 18% below their cyclical peak from two years earlier. The Primary Industrial Controls and Adjustable Speed Drives Index, a broader measure of demand for industrial controls products, posted a smaller 1.7% quarter-to-quarter rate of growth during the second quarter of 2010 and increased nearly 24% on a year-over-year basis.

The U.S. economic recovery appears to be losing some momentum, according to NEMA. Real GDP registered a 2.4% percent annualized rate of growth during the second quarter of 2010 and revisions to prior quarters suggest the recession was deeper than previously thought and the recovery has also been weaker to date. Inventory investment remains the key source of support for broader macroeconomic growth, as consumer spending continues to struggle under the heavy weight of debt deleveraging, mortgage defaults, and uncertainty caused by a sluggish labor market. Perhaps the one bright spot to date has been the sharp rebound in capital spending activity, as real business investment in equipment and software has surged at an average annualized rate of more than 20% during the last two quarters. The majority of spending has been focused on productivity-enhancing IT equipment and software, but traditional capital goods have accounted for a large share of outlays due to a boost in replacement demand for industrial machinery and equipment.

While the broader economy has experienced a tepid recovery, the manufacturing sector has posted several consecutive quarters of robust output growth. In fact, its performance to date in the post-recession period has been the closest to a V-shaped recovery of any sector of the economy, which helps to explain the solid rebound in industrial control shipments. Manufacturing output increased 8.3% on an annualized basis during quarter 2 2010 and has posted similar rates of growth in each of the last four quarters. The upturn in manufacturing activity has brought previously idled production capacity back online and bolstered replacement demand for machinery and equipment, including industrial controls and speed drives. Going forward, while more factory capacity will be re-started in the coming quarters and a robust recovery in profits will support equipment investment, the inventory restocking phase that underpinned the manufacturing sector’s recovery thus far is winding down, thereby dampening the outlook for output growth. As a result, NEMA’s industrial controls indices are expected to register smaller gains during the second half of 2010 and into 2011.

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