Press Release Summary:
According to NEMA, Primary Industrial Controls Index surged 8.3% in 4th quarter of 2007 relative to 3rd quarter. NEMA's Primary Industrial Controls and Adjustable Speed Drives index, which measures broader demand for industrial controls, increased 6.7% from prior quarter and 11.4% on year-over-year basis. However, with stumbling housing market and recession fears, prospects for manufacturing sector have eroded and may result in declines in shipments of industrial controls in 2008.
Original Press Release:
Industrial Control Shipments Finish 2007 Strong, but Darkening Economic Outlook Likely to Weigh on Future Demand
The Primary Industrial Controls Index surged 8.3 percent in the fourth quarter of 2007 relative to the third quarter. On a year-over-year basis, the index increased 10.6 percent, the largest gain by this yardstick since the beginning of 2006. For the full calendar year, the index registered growth of 6.2 percent, the best year in terms of growth since 2004, and climbed to its highest level since 1997. NEMA's Primary Industrial Controls and Adjustable Speed Drives index, which measures broader demand for industrial controls, also expanded at a healthy pace, increasing 6.7 percent from the prior quarter and 11.4 percent on a year-over-year basis. For all of 2007, the index climbed 7.9 percent.
Despite strong demand for industrial control equipment during the fourth quarter, U.S. economic growth has slowed considerably in recent months. Indeed, after real GDP growth jumped nearly 5 percent on an annualized basis during the third quarter, it almost stalled completely at the end of 2007, posting an annualized gain of only 0.6 percent. Consumer spending expanded at its slowest pace in years, residential investment continued to decline precipitously, inventories contracted, and the balance of trade was not as strong despite a slumping dollar. On a positive note, business investment expanded at a solid pace, most notably for spending on nonresidential structures.
In terms of the manufacturing sector, the most direct driver of industrial controls demand, indicators have remained largely positive but clearly show growth has moderated over the past 12 months. For example, the ISM manufacturing index has hovered around the expansion/contraction threshold of 50 for the better part of five months, even coming in below 50 during December 2007. The production component of the ISM index did recently rise to its highest level since last summer, but other components have been less impressive and more indicative of weakening final demand. Reports on durable goods orders indicate capital spending by businesses remain elevated and should support manufacturing activity over the near term, as should strong export demand as a result of the weak dollar. Nonetheless, with the stumbling housing market and signs that business confidence is becoming increasingly fragile due to recession fears, prospects for the manufacturing sector have eroded and may result in declines in shipments of industrial controls in 2008.