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Motors Shipments Rise During Third Quarter of 2009
NEMA’s Motors Shipments Index (MSI) increased 1.7 percent during the third quarter of 2009. Still, the index continued to reflect a weak demand environment for motors, lagging nearly 23 percent behind its year ago level. Inflation and seasonally-adjusted shipments of fractional horsepower motors increased for the second consecutive quarter, while integral HP motors registered their fifth decline in the last six quarters.

This modest gain in motors demand did not come as a total surprise, given that a host of indicators suggest the US economy emerged from recession some time during the summer. Indeed, real GDP expanded 3.5 percent on an annualized basis during the third quarter. Consumer spending perked up and the housing market showed some signs of improvement, with construction, prices and sales increasing during the quarter. Federal spending bolstered the topline reading as well due to ramped-up defense spending and a faster pace of release of stimulus funds. Businesses continue to liquidate inventories, but that process appears to coming to an end, or at least slowing dramatically.

The manufacturing sector, which experienced its deepest contraction in output since the Great Depression, has seen conditions improve over the past several months. Auto production accounts for a sizable chunk of this rebound, but even when one excludes the boost caused by the jump in auto production, other industries have contributed to the gains in industrial output. However, as the boost from the inventory cycle fades during the first half of 2010, the manufacturing sector’s recovery is expected to lose some steam and will likely weigh on demand for motors and other types of industrial equipment.

Indeed, replacement demand will likely be far from robust at that point since the national average capacity utilization rate remains in the upper 60 percent range, suggesting that a lot of productive capacity is sitting idle. Aside from the lack of wear-and-tear on machinery, companies will likely not be in any rush to ramp up investment plans since access to credit still remains impaired and profit growth is tenuous and linked largely to cost-cutting efforts. As a result, the motors index will likely register only modest gains until the manufacturing sector’s recovery enters a phase where growth is sustained by a broader base of drivers such as consumer spending, business investment and export demand.