Rosslyn, VA, November 6, 2006 -- The National Electrical Manufacturers Association's (NEMA) Primary Industrial Controls Index fell 2.8% between the second and third quarter of 2006. This marks the second consecutive quarter-to-quarter decline in the index since the second half of 2002. Conditions have clearly cooled down from the torrid pace of last year as the topline index dropped 0.1% on a year-over-year basis, which represents the first such decline in three years. A broader measure of demand for industrial controls, the Primary Industrial Controls and Adjustable Speed Drive Index, also contracted during the third quarter of 2006, falling 1% from the prior quarter. However, trend growth in the broader industrial controls market remains positive given the index's 3.2% gain versus the third quarter of 2005.

A declining housing industry helped to push overall economic growth lower in the third quarter of 2006, while some other signals have emerged to suggest that the slower growth pace is spreading to the industrial sector. For example, although it continues to point to expansionary conditions, the ISM Index dropped to its lowest point in more than three years due to survey respondents reporting slower growth in production and new orders of manufactured goods. Meanwhile, the September 2006 report on industrial production showed that manufacturing output declined by the fastest pace since last year's Hurricane Katrina-induced nose dive and that the sector's softness was fairly broad-based. Even the electroindustry, which has seen robust growth over the past few years, is softening somewhat as NEMA's Electroindustry Business Confidence Index (EBCI) posted another reading below 50, indicating the sector is no longer expanding.

Despite these emerging signs of weakness, an economic recession is improbable. Instead, the U.S. economy is likely transitioning into a stage characterized by a slower, more sustainable rate of growth. In addition, the backdrop for business capital spending, i.e., record corporate profits and strong replacement demand, should allow demand for industrial controls and adjustable speed drives to expand modestly going forward. For example, factory orders of "core" capital goods, which includes industrial control equipment, increased 13% on an annualized basis during the third quarter of 2006, while unfilled orders of these goods surged at an 18% annualized rate. Both of these indicators likely suggest that some additional demand for capital equipment, including industrial controls and speed drives, remains in the pipeline.

The Industrial Control Business Indices are issued quarterly by NEMA. The Primary Industrial Control Index represents U.S. shipments for 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 provides a broader measure of the industrial control marketplace.