This marks the tenth consecutive quarter of year-over-year growth in the index and its highest reading since the first quarter of 2001. “While a portion of this growth reflects a typical seasonal demand growth,” says Brian Lego, NEMA’s director, economic analysis, “market conditions for industrial automation and controls equipment clearly remain strong as sales jumped more than 12 percent compared to the same period a year ago.”
At the same time, the Primary Industrial Controls and Adjustable Speed Drive Index touched a new all-time high for its five-year history. This broader index, which includes adjustable speed drives, posted a 5.8 percent quarter-to-quarter growth rate during the first quarter of 2006.
The near-term outlook for the U.S. manufacturing sector bodes well for industrial controls and adjustable speed drives, according to the report. Capacity utilization rates continue to edge higher in many industries, and output originating from non-high-tech manufacturing industries remains robust. Business investment, in particular, will likely push manufacturing activity even higher during 2006. For one, the degree to which capital spending on traditional goods, such as industrial controls, was depressed during the economic downturn suggests the recent brisk pace of investment will continue as companies replace old, worn-out equipment. More importantly, however, the extraordinary run for corporate profitability has left business coffers awash in cash, and surveys indicate an increasing willingness on the part of managers to use these profits in an effort to expand capacity and invest in new equipment.
Of course, inflationary pressures are now posing a downside risk to the outlook. The Federal Reserve has consistently hiked the benchmark interest rate in order to keep inflation in check. However, with the economy approaching capacity and energy prices continuing to rise in the face of strong global economic growth and geopolitical concerns, fears of inflation potentially accelerating in the near term could force the Fed to raise interest rates even higher, which would then likely begin to weigh on future macroeconomic gains.
What it covers
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 index illustrates the market’s trend over several years. In 2001, the NEMA data collection program was expanded to include adjustable speed drives, a key energy-saving industrial component. The Primary Industrial Control and Adjustable Speed Drive Index provides a broader measure of the industrial control marketplace. Industrial control equipment, a $2.6 billion U.S. market, is primarily used in industrial applications for the control or regulation of power utilization apparatus, including motors.