NEMA’s Electroindustry Business Confidence Index (EBCI) for current North American conditions continued to signal industry expansion in January. At 55.2 points, the EBCI topped the 50-point threshold, indicating a business environment favoring industry growth for the 33rd month in a row.
At the same time, the EBCI, a monthly survey of electrical manufacturers conducted by the National Electrical Manufacturers Association (NEMA), Rosslyn, Va, has declined in each of the last four months, suggesting that conditions have moderated since reaching a near-term peak in late summer. The January EBCI for future North American conditions climbed slightly to 56.9 points, up from 56.3 a month ago.
Current sentiment and future expectations for the other three world regions included in the survey remained in positive territory for the fourth month in a row, though both indexes for Latin America were off sharply relative to December. Meanwhile, readings for Europe and the Asia/Pacific region changed only modestly from last month.
Several respondents were quite excited about what they have seen so far in 2006. Said one NEMA manufacturer, "January new business for North America is at its highest level ever." Another EBCI respondent said, "January is off to a roaring start."
Nonetheless, current North American sentiment has slipped from the recent-year high of four months ago. One manufacturer said economic conditions were solid, but they weren’t quite as strong as October and November, while another said the market has "softened somewhat."
Comments regarding global conditions over the next six months were largely positive. Several panelists saw the potential for a very strong year in 2006, depending on an end to Federal Reserve interest rate hikes, a stabilization of commodity prices and an "orderly retreat," as opposed to an abrupt drop, in the housing market.
Respondents’ evaluations of the impact of post-storm construction in the Gulf Coast and rising commodity prices were mixed. Said one NEMA member, "Business conditions continue at a high level for this time of the year. Interestingly, the Katrina/Rita rebuild does not appear to have been that much of a factor yet." Added another respondent, "We still have mixed signals on commodity prices and the ‘storm effect’ subsidies."
Respondents were bullish about market conditions six months down the road, although they are watching the slowdown in the housing market and the potential impact on consumers. "Most of the forecasters are projecting substantial increases in business capital spending as well as in nonresidential construction for 2006," said one manufacturer. "If this happens and if housing doesn’t decline by too much, 2006 could be a blowout year."
If interest rates stay in check, one manufacturer said 2006 could be a very good year for the electrical market. "It’s very encouraging to hear that the Fed may be close to finished raising rates," he said. "As long as oil and commodity prices stabilize, 2006 could be as good a year as 2005."