Nema's Industrial Controls Indices Surge in Second Quarter of 2005

ROSSLYN, Va., August 8, 2005. Sales of industrial control products and systems, as measured in NEMA's Primary Industrial Controls Index, expanded by 4.8 percent in the second quarter of 2005. Compared to the same period a year ago, the index increased by 4.6 percent. Overall, NEMA's Primary Industrial Controls Index has posted year-over-year gains in 10 of the last 12 quarters and is now more than 20 percent 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 director, economic analysis.

The Primary Industrial Control and Adjustable Speed Drive Index posted a sizable gain of 5.4 percent during the second quarter. Though increasing at a slightly more subdued pace of 4.8 percent when compared to the same period a year ago, the market remains very strong as the index registered a gain of nearly 11 percent in the second quarter of 2004. This quarter's figure marks the second highest reading in the index's brief history as well as a 22 percent gain in sales since the fourth quarter of 2002.

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 3-month Treasury bills were below 1 percent, but have since increased by more than 200 basis points since then to 3.3 percent. With the Fed expected to continue raising the benchmark federal funds rate through the next several meetings, the interest rate environment is likely to serve as a mild damper on growth for the next several quarters.

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 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. Nonetheless, since the U.S. economic expansion has settled into a stable pace of growth, further measurable gains in factory operating rates are unlikely.

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 percent in the second quarter of 2005. "Output data for industrial machinery indicate an even more robust growth, as production increased 15 percent 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 percent 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."

NEMA is the leading trade association in the United States representing the interests of electroindustry manufacturers. Founded in 1926 and headquartered near Washington, D.C., its 400 member companies manufacture products used in the generation, transmission and distribution, control, and end-use of electricity. Domestic shipments of electrical products within the NEMA scope exceed $100 billion.


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