Modest Rebound in Motor Demand Continues During Second Quarter of 2007

Shipments of integral and fractional horsepower motors increased for the second consecutive quarter, as the National Electrical Manufacturers Assn.’s Motors Shipments Index increased 2.8% on a quarter-to-quarter basis during the second quarter of 2007.

08/14/2007


Shipments of integral and fractional horsepower motors increased for the second consecutive quarter, as the National Electrical Manufacturers Assn.’s Motors Shipments Index increased 2.8% on a quarter-to-quarter basis during the second quarter of 2007. On a year-over-year basis, the index suggests that underlying gains in motors demand growth remain small, with a 0.1% gain in the topline index compared to the second quarter of 2006. Nonetheless, the motors shipment index has increased 56% from its nadir in the last economic downturn.

After a considerable slowdown during the first quarter, with a gain of just 0.6% on an annualized basis, macroeconomic growth clocked in at a solid 3.4% rate during the second quarter. The housing market continues to weigh on the broader economy, particularly as construction activity and prices continue to sink and problems in the subprime mortgage market deepen. By contrast, the inventory cycle appears to be turning to the positive since recent data show businesses now are adding to stockpiles after several quarters of depleting them. Business investment should also remain a positive contributor to economic growth going forward as companies are flush with cash thanks to an unprecedented run for corporate profitability.

Given the healthy prospects for capital spending, as well as strong export demand, integral horsepower motors will likely continue to see modest gains in demand going forward. By contrast, end-market conditions have soured for fractional horsepower motors and are expected to remain a limiting factor to future gains in the topline index. The residential housing market, which is one of the more important ultimate destinations for products containing fractional motors, has not yet reached a bottom, and the probability that conditions worsen further during the second half of 2007 is high and rising. Indeed, this sentiment is shared by the nation’s largest homebuilders, as the National NAHB housing market index’s six-month outlook indicates that a wide majority of builders see market conditions deteriorating further as the most probable scenario.

The NEMA Motors Index is a composite measure of NEMA-member companies’ U.S. shipments of fractional and integral horsepower motors. Product shipments data are drawn from NEMA statistical surveys and are adjusted for inflation and seasonal fluctuations.





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