NEMA’s Lighting Systems Index increased 3.3 percent on a quarter-to-quarter basis during the third quarter of 2009. This marks the LSI’s first increase in 9 quarters. Nonetheless, the index is only one quarter removed from its lowest reading on record and declined 19.3 percent on a year-over-year basis. After adjusting for seasonal influences and inflation, emergency lighting equipment was the only index component to see shipments weaken compared to the second quarter of 2009; however, every category experienced a decline in shipments on a year-over-year basis, with luminaire suffering the largest drop-off versus the third quarter of 2008.
The bulk of evidence suggests that the economy hit rock bottom during the second quarter and started to emerge from recession during 2009Q3. Indeed, the housing market, which had been hammered non-stop by plunging prices and construction for almost 3 years, saw conditions firm during the third quarter of 2009, with prices, construction and sales all experiencing sequential gains. While a very high number of distressed sales and the temporary impact of the homebuyer tax credit are making it difficult to obtain an accurate reading of the housing market’s underlying health, building activity has clearly increased and is bolstering demand for residential lighting equipment. Expectations are that the housing market will continue to slowly recovery heading into 2010. However, the labor market poses a risk moving forward as continued job losses could cause foreclosures to accelerate and place renewed downward pressure on prices and construction activity going forward.
Demand for lighting equipment manufactured for nonresidential lighting applications, by comparison, is expected to further declines thanks to ongoing weakness in the commercial real estate market. Office vacancy rates are closing in on their highest levels since the implosion of the dot-com industry; meanwhile, sharp declines in international trade, manufacturing output and wholesale inventories have pushed industrial vacancy rates to new all-time highs.
With vacancy rates high and construction activity declining, replacement demand for lighting is expected to take a hit. Retrofitting existing lighting equipment to more energy-efficient systems will be hurt over the near term as businesses try to bolster profits by cutting any costs that are perceived as unnecessary in the near term. Even though the economy is expected to recover further for at least the next few quarters, the commercial real estate market’s troubles are only in the early stages and this will likely weigh heavily on lighting equipment used in office, industrial, retail or other commercial applications for the next several quarters. Indeed, declines in shipments of commercial lighting equipment will likely offset the modest uptrend expected in residential demand, keeping any gains in the LSI to a minimum as late as 2011.