Rosslyn, VA, August 19, 2008: Demand for industrial control equipment improved during the second quarter, as NEMA’s Primary Industrial Controls Index gained 2.4% over the first three months of 2008. The index’s first quarter reading was revised slightly upward to a 5.1% decline. Compared to the same period a year ago, the index registered its 19th consecutive increase, expanding 3.1%. A similar trend was apparent for a broader measure of industrial control demand, the Primary Industrial Controls and Adjustable Speed Drives index. That index rose 3.9% compared to the first quarter and 4.5% on a year-over-year basis.
Given the second-quarter bump in U.S. economic growth, the rebound in demand for industrial controls was not completely unexpected. Real GDP increased at a 1.9% annualized rate, accelerating from the lackluster 0.9% observed during the first quarter of this year. Rising exports and improving consumer spending were chiefly responsible for the stepped-up pace of aggregate economic activity. A sharp drawdown in inventories, which weighed on growth, likely bodes well for manufacturing output growth over the near term. Business spending on equipment and software contracted for the second consecutive quarter, but the pullback was driven by a large drop in spending on transportation equipment. Indeed, businesses ramped up spending on tech equipment and traditional capital goods, such as industrial equipment. Moreover, the credit crunch does not appear to be affecting companies’ appetites to invest in new space as nonresidential construction spending hit a new record high for the second consecutive quarter.
Manufacturing activity, though not at the level of two years ago, has remained resilient. The ISM manufacturing index dipped slightly from 50.2 to 50 between June and July, but this still indicates the sector is not seeing broad-based drop in activity. Much of the sector’s pain remains concentrated among auto manufacturers and industries with strong ties to the maligned housing market. Measures of capital spending have followed an up-and-down pattern over the past several quarters, but should firm up over the near term thanks to bonus depreciation allowances stemming from the economic stimulus package. However, the largest source of support for manufacturers has been the strong gains in export demand. Thanks to steady global economic growth and a weak dollar, U.S.-manufactured goods have remained price competitive on international markets, thus providing a veritable “floor” for the sector as a whole.