NEMA Forecasts Climbing Demand for Motor Orders, Followed by Weak Near-Term Gains

NEMA's Motors Shipments Index, which measures quarterly shipments of integral and fractional horsepower motors adjusted for seasonality and inflation, increased 2.4 percent on a quarter-to-quarter basis during the first quarter of 2007. On a year-over-year basis, the data suggest a flattening out in-demand growth, as the index gained less than 1 percent compared to the first quarter of 2006. Overall, the motors shipment index has jumpedapproximately 60 percent since the first quarter of 2004. Gains in motors demand have continued even as the U.S. economy as a whole has shown signs of slowing. Indeed, real GDP increased by a meager 1.3 percent during the first quarter of 2007--the slowest pace of U.S. economic growth since early 2003--and additional macroeconomic data released following the initial report suggest it could be revised down to 1 percent or lower. Although much of this weakness was centered on the housing market, as it has for the past year, government spending has run lower than expected and exports have slumped despite the U.S. dollar's sharp retrenchment over the past several months. Nonetheless, market demand for integral horsepower motors remains healthy due to an improving situation for the rest of the manufacturing sector. The rapid expansion in demand for integral horsepower motors over the past few years, combined with the slowing of the broader U.S. economy, suggests some slowing in demand growth is likely going forward, says NEMA. However, the economy-wide inventory situation has improved and funds for business investment remain plentiful thanks to near-record corporate profits. Thus, demand for capital goods such as integral HP motors will likely remain healthy during 2007, the study project By contrast, end-market conditions have soured for fractional horsepower motors. One of the more important ultimate destinations for products containing fractional motors, the residential housing market, has experienced a dramatic deterioration the past several quarters.