The long economic winter may finally be ending for the electrical industry.
It's been an unseasonably mild winter in many parts of the United States, and outside of skiers and other powderhounds, many of us would gladly bid the cold weather adieu until Thanksgiving. While it's way too early to say the cold weather is gone for good, it's nice to see some adventurous perennials starting to break through the soil and golf course fairways greening up a bit.
The mild weather and hopes for an early spring remind me of some of the recent conversations I have had with industry folks on their forecasts for an economic recovery this year. Early signs of improving business conditions are starting to pop up, and everybody is hoping they are for real. At the same time, some market prognosticators are looking nervously at the clouds and wondering if another storm might blow in. If you want to get some early insight into where the electrical market is headed this year, check out the following indicators.
Leading economic indicators
The Conference Board's Leading Economic Index (LEI) (www.conference-board.org) tracks several economic indicators, including initial weekly claims for unemployment, new orders for consumer goods and nondefense capital goods, building permits and stock prices. The LEI has been on a quiet roll since October, and one Conference Board economist says that while things are looking up in the United States, the European economy could tamp down growth.
Says Ken Goldstein, “The LEI provides some reason for cautious optimism in the first half of 2012. This somewhat positive outlook for a strengthening domestic economy would seem to be at odds with a global economy that is losing some steam. Looking ahead, the big question remains whether cooling conditions elsewhere will limit domestic growth or, conversely, growth in the U.S. will lend some economic support to the rest of the globe.”
Homebuilders generally don't pull building permits unless they plan to break ground on a new house, so building permit data, available from the U.S. Census Dept. at www.census.gov/construction/bp, is a good early indicator. Another good sign in this market is that in its most recent “Eye on the Economy” report, the National Association of Home Builders (NAHB), Washington, D.C. said builders are feeling more confident, in part because housing inventories dropped more than 9% in December to a 6.2-months supply, down from 7.2 months in November.
Quarterly financial results of publicly held electrical companies
The 10Q reports and related press statements from publicly held electrical manufacturers, distributors and contractors are an interesting read, particularly the forecasts from senior executives for the coming year. The most recent batch of financial reports that were published last month were encouraging, as several companies, including Cooper Industries, Eaton Corp., W.W. Grainger, Hubbell, Thomas & Betts and WESCO enjoyed double-digit gains YTY in both sales and net profits. And in the housing market, the stocks of several publicly held homebuilders have been on quite a tear so far this year.
NEMA's EBCI Index
Regular EW readers may already follow this indicator each month in the “Electrostats” department. In its Electroindustry Business Confidence Index (EBCI), the National Electrical Manufacturers Association (NEMA), Rosslyn, Va., surveys executives at manufacturers each month on business conditions, and the most recent report said industry execs are very bullish about North American business conditions six months down the road.
Architectural Billing Index (ABI)
As a leading economic indicator of construction activity, the Architectural Billings Index (ABI), published monthly by the American Institute of Architects (AIA), Washington, D.C., reflects the approximate nine- to twelve-month lag time between architecture billings and construction spending.
In the most recent ABI, Kermit Baker, AIA's chief economist said, “We saw nearly identical conditions in November and December of 2010 only to see momentum sputter and billings fall into negative territory as we moved through 2011, so it's too early to be sure that we are in a full recovery mode. Nevertheless, this is very good news for the design and construction industry and it's entirely possible conditions will slowly continue to improve as the year progresses.”
If I was a betting man, I would place a small wager on some steady but not spectacular industry growth in 2012. Now try to get outside and enjoy some of this fine weather.