Industrial Controls Index ticks higher during third quarter.

Press Release Summary:

Demand for industrial controls increased moderately during third quarter of 2009, with NEMA's Primary Industrial Controls Index rising 1.6% versus April-June period. However, shipments remain low, with index more than 30% below third quarter of 2008. Primary Industrial Controls and Adjustable Speed Drives Index posted 0.9% increase over second quarter of 2009, but also continues to reflect lackluster demand with 29.5% decline on year-over-year basis.

Original Press Release:

Industrial Controls Index Ticks Higher During Third Quarter of 2009

ROSSLYN, Va., -Demand for industrial controls increased modestly during the third quarter of 2009, with NEMA's Primary Industrial Controls Index rising 1.6 percent versus the April-June period. While this represented the first quarter-to-quarter gain for the index since 2008Q2, shipments remain at a very low level, with the index still more than 30 percent below the third quarter of 2008. A broader measure of industrial controls demand, the Primary Industrial Controls and Adjustable Speed Drives Index, posted a 0.9 percent increase over the second quarter of 2009, but also continues to reflect lackluster demand with a 29.5 percent decline on a year-over-year basis.

While the economy is not anywhere near pre-crisis levels, several erstwhile struggling sectors have displayed signs of improvement in recent months. For example, real GDP increased 3.5 percent on an annualized basis during the third quarter of 2009, marking the first quarter-to-quarter increase in aggregate economic output since 2008Q2. Consumer spending perked up and the housing market showed some signs of improvement, with construction, prices and sales increasing during the quarter. Federal spending bolstered macroeconomic growth during the third quarter as ramped-up defense spending and acceleration in the pace of release of stimulus funds offset declining outlays by cash-strapped state governments. Also, business investment in IT equipment and software climbed for the second quarter in a row despite ongoing weakness in broader measures of capital spending activity.

Even the manufacturing sector, which experienced its deepest contraction in output since the Great Depression, has seen conditions improve over the past several months. Businesses continue to liquidate inventories, but that process appears to coming to an end. Also, orders for durable goods have started to trend higher and the capacity utilization rate reached its highest point since the end of 2008. Auto production accounts for a sizable chunk of this rebound in manufacturing indicators, as automakers have restarted production lines that were shut down or dramatically cut back during the summer and in some instances have raised production targets for the next few quarters. Nonetheless, even when one excludes the boost caused by the jump in auto production, other manufacturing industries are contributing to the gains in industrial output.

At the moment, a turn in the inventory cycle is providing a boost to production and will continue to do so into early 2010. Beyond that point, however, the manufacturing sector's recovery will likely fade a bit and place some downward pressure on demand for industrial control equipment. Indeed, with the national average capacity utilization rate still in the upper-60% range, a lot of productive capacity is still not in use and this will keep a lid on replacement demand for industrial equipment and machinery. Also, without a clear direction on the economic recovery or sufficient access to debt capital, companies will likely not be in any rush to ramp up investment plans and thus hold back on aggressively upgrading or replacing industrial controls and related types of machinery.

NEMA is the association of electrical and medical imaging equipment manufacturers. Founded in 1926 and headquartered near Washington, D.C., its approximately 450 member companies manufacture products used in the generation, transmission and distribution, control, and end use of electricity. These products are used in utility, industrial, commercial, institutional, and residential applications. The association's Medical Imaging & Technology Alliance (MITA) Division represents manufacturers of cutting-edge medical diagnostic imaging equipment including MRI, CT, x-ray, and ultrasound products. Worldwide sales of NEMA-scope products exceed $120 billion. In addition to its headquarters in Rosslyn, Virginia, NEMA also has offices in Beijing and Mexico City.

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