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Demand for Industrial Control Equipment Continues to Rise in First Quarter of 2011


5/26/2011 1:35 PM

NEMAs Primary Industrial Controls Index increased 5.9 percent on a quarter-to-quarter basis during the first three months of 2011. The index has registered sequential gains in six of the last seven quarters and stands 18 percent above its year-ago level and 40 percent above the cyclical trough observed in mid-2009.

Nonetheless, inflation- and seasonally-adjusted shipments remain 9 percent below their previous cyclical peak. The Primary Industrial Controls and Adjustable Speed Drives Index, a broader measure of industrial controls demand, posted its seventh consecutive gain during the first quarter of 2011, rising 6.2 percent from its 2010Q4 level. On a year-over-year basis the index climbed at an 18.6 percent rate.

Industrial Index 1qtr 2011 - Chart 1

Industrial Index 1qtr 2011 - Chart 2

The manufacturing sector continued its impressive run during the first quarter of 2011, climbing 9.1 percent on an annualized basisthe largest percentage rate of growth since the recession. However, readings from major business surveys, including the bellwether ISM, suggest a looming deceleration from the torrid pace set at the beginning of the year. Indeed, annualized manufacturing output growth is likely to slip below 5 percent as 2011 progresses.

Passenger vehicle output, a strong contributor to the first quarter growth surge, is expected to flag in the middle part of the year because of supply disruptions stemming from the Japanese earthquake and its aftermath. Moreover, while inventory investment will continue run at a higher level than forecast a few months ago, it is likely to become neutral in terms of its impact on output growth for the balance of 2011.

Demand for industrial controls, speed drives, and other related types of industrial equipment is expected to remain at a high level for the remainder of this year, although the pace of growth will likely moderate as broader manufacturing activity growth slows.

Rising rates of manufacturing sector capacity utilization, healthier business balance sheets, low financing costs, and accelerated depreciation allowances enabling businesses to lower the effective cost of purchasing machinery and equipment will all provide support.

Contact
Tim Gill, Director of Economics, tim_gill@nema.org