Don Leavens, the chief economist for the National Electrical Manufacturers Association, (NEMA), Rosslyn, Va., said in a note on the association's Web site at www.nema.org that although the economy continues to improve, NEMA members can expect a slow 2004 before business picks up in 2005.
“The guarded optimism expressed by many respondents (to the NEMA Confidence Index survey) reflects the fact that several key economic indicators are still working against the electrical manufacturing sector,” he said. “For example, factory capacity utilization remains close to 20-year lows. With so much unused factory capacity both here and around the world, the urge to construct new plants and the need to refurbish existing plants that are underutilized is significantly restrained.”
Leavens also said continued weakness in nonresidential construction is still holding back demand for low-voltage distribution equipment, and that passage of federal energy legislation now bogged down on Capitol Hill would have been a potential market driver for the electrical industry. Since the bill's passage was blocked last year, businesses are in a wait-and-see mode, holding off on potential investments.
However, he doesn't think recovery is far away, and said the industry remains poised to begin the long climb from its nearly three-year plunge into recession.
“The now firmly rebounding economy, absent the paralyzing effect of uncertainty about war, will gradually reverse the long slide in factory utilization and nonresidential construction,” he said. “Most sectors will see improvement by the fourth quarter of 2004 compared to the depressed levels of the same period in 2003. The outlook brightens considerably by 2005, as more than two years of economic recovery will have finally absorbed much of the excess capacity in factories and commercial and industrial real estate. Unfortunately for much of 2004, manufacturers will have to endure reports of sharply improving conditions elsewhere in the economy before they finally begin to experience the rising economic tide in their sector.”