The Primary Industrial Controls Index, measured by Rosslyn, Va.-based NEMA, experienced its largest quarter-to-quarter decline on record, contracting more than 23% in the first quarter of 2009 versus the fourth quarter of 2008. On a year-over-year basis, the index showed a very rapid downward movement, dropping 30.5% compared to the first quarter of 2008. Inflation-adjusted shipments of industrial control equipment have fallen to their lowest level since 1991. Conditions in the broader industrial controls market, as measured by the Primary Industrial Controls and Adjustable Speed Drives index, were also weak, but slightly less so, as this metric slipped 19.6% from the prior quarter and more than 26% on a year-over-year basis.
Demand for industrial controls has mirrored that of other types of capital equipment over the past few quarters, according to NEMA. During the first quarter of 2009, real business spending on equipment and software plummeted nearly 34% on an annual basis — the largest decline in 51 years. Increasingly tight lending standards, slumping profits, declining industrial output, and a deteriorating labor market have caused businesses to slow spending on new construction and expansion plans.
The factory sector is suffering the deepest recession in the post-WWII era. While much has been made of the Detroit automakers’ struggles, the manufacturing sector’s turmoil extends far beyond autos as producers of industrial and business equipment as well as consumer goods are seeing steep declines in output, according to the organization. The national average capacity utilization rate remains at an all-time low: 65% of operable factory capacity is currently in use for the sector as a whole, with readings in the low 30s for a few particularly hard-hit industries. On a positive note, it appears that the worst of the collapse in manufacturing activity is over; nonetheless, prospects for a speedy recovery are miniscule at this time. Demand for industrial controls and similar capital goods will remain weak for the next several quarters as businesses try to restore profitability by downsizing operations, liquidating inventories, and delaying/canceling investment plans.