Electrical Business Conditions Deteroriate in August

NEMA’s Electroindustry Business Confidence Index (EBCI) for current North American conditions declined for the fourth month in a row in August and, at 46.2, is now below the 50-point threshold indicating conditions favorable to growth. For the past 39 months, the EBCI index had topped the 50 point mark. The EBCI is a monthly survey of electrical manufacturers conducted by the National Electrical Manufacturers Association (NEMA), Rosslyn, Va.

At the same time, the EBCI Future Conditions Index for North America posted its second straight monthly drop, and its fourth in the last five months, sliding to 17.3 points, from 23.2 in July. EBCI respondents said conditions were better outside North America. Current conditions were seen as improving in Latin America, Europe, and the Asia/Pacific region, though the score for Europe slipped slightly from a month ago.

The August decline in the EBCI follows more than three years of continuous expansion, NEMA said some of the factors contributing to the decline were a nationwide housing market correction; continued upward pressure on interest and inflation rates; and an ever-turbulent Middle East. However, the trade association urged caution interpreting this month’s EBCI, because although electrical industry shipments were off slightly in June, they still outpaced their year-ago level by more than 12 percent. NEMA said that the electrical experienced significant growth over the last three years, and was likely entering a period of moderation. Said one EBCI panelist, “We see things settling a bit in the next six months – nothing alarming.”

Another manufacturer reported a 10-percent decline in year-to-date trends in all of its business units in July, and a marked slowdown in its residential business. However, the respondent said business had picked up in August, although not to the same level as in the first six months of 2006. On the flip side, two manufacturers reported solid sales. “August has started off gangbusters,” said one NEMA member. “Daily incoming order rate is running 15 percent ahead of July, which was an excellent month.” “Business in July was outstanding,” said another respondent. “The strength that we saw in the first half appears to be extending into the third quarter with no letup in sight.”

However, there was no doubt that most EBCI respondents are sensing some change in business conditions, although they aren’t yet reporting any dramatic decreases in businesses. One manufacturer said real potential exists for the North American economy to slow on higher interest rates with threat of inflation. “The Middle East situation is undermining confidence that is crucial to sustain strong economic activity into the future,” said the manufacturer.

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