NEMA’s Primary Industrial Controls Index rose 3.3 percent on a quarter-to-quarter basis during the fourth quarter of 2010. The index has registered gains in five of the last six quarters. With this latest increase it is nearly 24 percent above its level of one year earlier.
NEMA said inflation- and seasonally-adjusted shipments of industrial control equipment still have an "appreciable amount of ground to make up" before surpassing the previous cyclical peak. The Primary Industrial Controls and Adjustable Speed Drives Index serves as a broader measure of industrial controls demand and rose 2.5 percent between the third and fourth quarter of 2010 and registered a 21.6 percent gain versus 4Q 2009.
Manufacturing sector output growth slowed during the second half of 2010 and, given what NEMA said is the recent end to the inventory rebalancing cycle, is unlikely to revert back to the pace of gains seen at the outset of the recovery. NEMA said the emergence of sounder demand fundamentals "should support solid rates of growth" in factory production and operating rates during 2011.
"Notwithstanding the labor market’s lagging response, the economic recovery has shown signs of strengthening in recent months and the tax cut extension should bolster final demand for manufactured goods by engendering ramped up spending activity in businesses and households," NEMA said.
NEMA’s industrial controls indices will likely see continued growth as companies continue to ramp up spending on capital goods. While demand will likely not surge to the same extent as what was observed in early 2010, NEMA said strong corporate profitability, measurably improved balance sheets and low financing costs will buoy investment in industrial controls and other related types of equipment. Also, the bonus depreciation allowance included within the administration’s tax cut package is expected to buoy business investment over the near term, including demand for controls, speed drives and other industrial equipment.