The electrical industry may be settling into a period of steady growth, although not quite at the rate some electrical manufacturers experienced earlier in the year.
According to the June 2004 NEMA Electroindustry Business Confidence Index (EBCI) published by the National Electrical Manufacturers Association (NEMA), Rosslyn, Va., respondents reported decent, but not spectacular improvement in the current business conditions affecting the electrical industry. The EBCI, a monthly survey of NEMA members, said respondents believe conditions are better than they were last year, but may have cooled a bit from the pace established in the most recent few months. End-market performance received mixed reviews, with telecom growing, but industrial, commercial and utility markets not adding to the electrical industry’s recovery.
In the EBCI June report, all four current conditions indexes remained in the range above 50 (the threshold indicating conditions are favorable for growth), suggesting growth in the electrical industry. Compared to May’s results, two regional indexes, Latin America and Europe, expanded while North America and Asia/Pacific contracted.
In all four indexes, however, the change was relatively slight; the biggest change was a six-point decline to 62.5 in Asia/Pacific. Confidence in North America receded by nearly five points to reach 68.5 this month. The Latin America index extended its breadth by about two points to 63.3, and confidence in Europe broadened from 57.7 to 60.7.
A somewhat different picture emerged in the results of the future conditions indexes as all the regional indexes contracted this month. Still, all four remained above the growth threshold. The North America index narrowed an almost imperceptible four-tenths from May’s level to 79.6 points in June. Latin America retreated by just over six points to 73.3; Europe pulled back by nearly the same amount to 75.0; and Asia/Pacific contracted only slightly from 66.7 to 64.3 in June.
“The recovery seems to be broadening, but for basic industry, some nagging concerns (oil and metals prices, diversion of investment dollars to defense, higher growth in high-tech and services) still prevent a feeling of real strength,” said one electrical manufacturer. “We’re seeing improved business conditions pretty much across the board, although industrial continues to be the non-participant in the recovery,” added another respondent.
Some NEMA respondents believe the favorable conditions will continue through the end of the year, although conditions for some are currently so good that they are unlikely to be better than they are now.
Respondents expect residential construction to slow down and nonresidential construction to pick up. They think interest rates will continue to increase, and expect the tremendous increase in the cost of materials experienced over the last several months to ease. They are keeping a watchful eye on the presidential election and the potential for modest slowing in its aftermath.
“The economy is now moving into the self-sustaining phase of the recovery with significant creation of jobs in the first five months of the year,” said one manufacturer. “Interest rates will be rising soon, although bond-traders have already priced in increases in long-term rates. We look for housing to slow over the course of the rest of 2004. Nonresidential construction should start to improve in the second half of 2004.”