NEMA’s Motors Shipments Index (MSI) rose 7.8% during the second quarter of 2010. On a year-over-year basis, the index registered a 16.1% rate of growth but remains approximately 16% below its peak. Of the index’s two underlying categories, seasonally- and inflation-adjusted shipments of fractional horsepower motors accounted for the entirety of the quarter’s growth while demand for integral horsepower motors remained surprisingly lackluster, particularly given the solid growth occurring in the broader manufacturing sector.

Although the U.S. economy remained on a path to recovery, it appears to be losing some steam as the second-half slowdown in growth that was widely expected might be coming a bit early. During the second quarter of 2010, real GDP expanded at a 2.4% annualized pace, down from the 3.7% gain in registered during the first three months of the year.

Inventory investment has been a significant contributor to measured topline growth since the recovery began (likely last year); because businesses are mostly finished with the restocking phase, however, growth will need to come from another source going forward. Consumer spending continues to be hampered by the debt deleveraging process while the uncertainty created by the ongoing weakness in the labor market will weigh on spending activity further.

Conversely, capital spending activity has been robust as real business investment in equipment and software jumped more than 20% on an annualized basis in each of the last two quarters. While the majority of spending has been directed toward IT equipment and software, businesses have ramped up investment in capital goods as well during 2010.

Although the initial pop in capital spending is expected to decelerate as the inventory investment cycle winds down, recent gains in capacity use and factory output have likely taxed aging or worn-out production equipment — especially after nearly 2 yr of slumping capital outlays. With corporate profits having rebounded strongly in the past year, businesses will have the ability to undertake new investment activity promptly should the recovery begin to gain some momentum. Until that time, however, demand for motors and other capital equipment integral to the production process will see only modest gains going forward.

Source: NEMA