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With all signs indicating we are in the midst of a worldwide recession, it's no surprise the economic indicators for the electrical industry are beginning to show the slow down is now hitting the industry. Real GDP declined 0.3 percent on an annualized basis during the third quarter, but this was somewhat deceptive as government spending and inventory stockpiling helped to offset a precipitous drop in consumer spending and capital goods investment.

Export activity, which had benefited the manufacturing sector significantly as business investment and consumer spending began to recede, is also facing serious headwinds of its own. An unprecedented turnaround in the dollar against nearly every currency save the yen is making U.S.-produced capital goods increasingly less price competitive. Moreover, the credit crisis and the spillover effect of a U.S. economic downturn is weighing on growth prospects across the globe, further dimming demand for durable goods such as integral and fractional horsepower motors. As a result, NEMA/BIS expects declines in the shipments index to continue over the next several quarters.

While motors shipments increased during the third quarter of 2008, climbing 1 percent over the previous three-month period, the broader downward trend in demand for motors continued as NEMA's Motors Shipments Index contracted on a year-over-year basis for the seventh time in the last eight quarters. Unlike in recent quarters, however, fractional horsepower motors managed to contribute positively to the topline index while sales of integral HP motors slipped from the level registered during the third quarter of 2007.

In the lighting world, NEMA's Lighting Systems Index contracted 4.3 percent in the third quarter of 2008 compared to the second quarter. Although the index's performance has been uneven over the past several quarters, the overall trend has been negative as the index fell 7.5 percent on a year-ago basis and has declined nearly 12 percent on a cumulative basis since the beginning of 2006. Domestic shipments dropped for all five lighting equipment segments, with large lamps posting the largest year-over-year decline.

Lighting equipment demand continues to take a significant hit from the residential market. Despite signs that a bottom might be forming in the level of existing and new home sales, construction activity continues to face headwinds on the supply and demand side. On the supply side, builders are loath to begin new homes as many local markets are bloated with inventories caused by record foreclosure rates. On the demand side, a weaker economy is prompting a pullback in household growth and creating a disincentive for consumers to make major purchases such as a new home. Moreover, lenders have reined in standards for loans, which will also reduce the ability of consumers to buy a new home. Even consumer purchases of energy-efficient lighting equipment such as CFLs has taken a hit as of late, as buyers have balked at their higher first-cost pricing.