According to Mark Douglass at Longbow Research, in their second quarter economic newsletter published July 2, 2013, the picture for industrial automation is mixed, with factory automation leading and process automation lagging.
Demand in the U.S. has strengthened since 1Q, primarily on increased strength from discrete markets with many respondents now exceeding expectations. Brazil seems to have recovered from a weak start to the year, though Germany and Mexico have softened.
U.S. demand is up mid-single-digits y/y (vs.up low single-digits y/y in1Q), driven by strength from discrete markets, though process markets are showing some small improvement as well. The strength appears to be due to a pickup in end user spending, notably food & beverage, automotive, packaging and consumer durables, rather than a pickup in machine OEMs. International demand remains mixed with strong growth in Brazil but softer, though stabilizing, demand in Germany and a weak 2Q in Mexico.
Pricing is flat (vs. flat to slightly up in 1Q), and inventories appear largely flat as well, with no problems reported with lead times.
The domestic outlook is still for y/y growth of mid single digits (vs. mid single digits in 1Q13) with respondents generally more optimistic in regard to discrete markets compared to process. International respondents were largely positive, with Brazil and Mexico fairly optimistic and the German outlook neutral.
Based on Longbow's survey, demand in the U.S. has strengthened since 1Q, primarily on increased strength from discrete markets as process markets increased only very slightly, and many respondents are now exceeding expectations vs. only meeting them or slightly disappointing last quarter. Brazil seems to have recovered from a weak start to the year, though Germany and Mexico have softened.
U.S. Demand Up Modestly Y/Y
Aggregate responses indicate a mid single digit y/y increase (vs. up low single digits y/y in 1Q), and most appear to be meeting or exceeding expectations (vs. at or slightly below expectations).
Discrete markets strengthened further, up high single digits y/y (vs. up mid single digits in 1Q), with most indicating business surpassing internal forecasts. The strength appears to be due to a pickup in end user spending, notably food & beverage, automotive, packaging and consumer durables, rather than a pickup in machine OEMs.
Process markets picked up very slightly, and are now higher by approximately low to mid single digits y/y (vs. up low single digits in 1Q) with most indicating business was about what they had expected coming into the year. Oil & gas markets remain strong, although mining commentary was mixed on recent weakness in copper and gold markets.
International Demand Remains Mixed
German demand is down about high single digits y/y (vs. down low single to mid single digits in 1Q) but appears to have stabilized. Though electronics markets are currently weak, automotive and chemical markets appear strong and consumer markets are resilient. In Brazil those we spoke with reported being up by approximately mid teens (vs. down high single to low double digits in 1Q13). There appears to be more spending for MRO and a corresponding increase in volume of smaller orders rather than higher-margin new capacity projects. Demand in Mexico has softened since our last channel check and the majority reported declines y/y (vs. up mid to high single digits in 1Q13). Some of the softness is likely a result of a slower state owned oil & gas due to political transitioning in the latter part of last year.
Global Pricing Flat, Global Inventory Levels Remain Stable
Global prices are flat (vs. up slightly in 1Q), with many expecting the traditional increases of a few percent from major manufacturers next quarter, e.g. ROK’s annual increase in August. Global inventory levels have remained flat for most, though a few respondents reported inventory had increased to better serve customers’ needs.
Outlook Still Optimistic
Domestic outlook still for y/y growth of mid single digits (vs. mid single digits in 1Q13), with respondents generally more optimistic when it came to discrete markets compared to process.
International respondents were largely positive, though optimism levels decreased slightly and varied by region. German respondents were neutral in their expectations, moderating somewhat from 1Q13, though Brazil and Mexico each expressed fairly strong levels of optimism.