U.S. Purchasing Managers Index: 53.9 in December vs. 52.7 in November
Economic activity in the U.S. manufacturing sector expanded in December for the 29th consecutive month, and the overall economy grew for the 31st consecutive month, reported the Institute for Supply Management.
The U.S. PMI registered 53.9% (Chart 2), an increase of 1.2 percentage points from November's reading of 52.7%, indicating expansion in the manufacturing sector for the 29th consecutive month.
The New Orders Index increased 0.9 percentage points from November to 57.6%, reflecting the third consecutive month of growth after three months of contraction.
Prices of raw materials continued to decrease for the third consecutive month, with the Prices Index registering 47.5%, which is 2.5 percentage points higher than the November reading of 45%.
Manufacturing is finishing out the year on a positive note, with new orders, production and employment all growing in December at faster rates than in November, and with an optimistic view toward the beginning of 2012 as reflected by the panel in this month's survey according to ISM.
U.S. Electronic Equipment & Components – November Shipments Orders & Inventories
The November domestic “Factory Orders” report was released last week. Here are some key results:
Electronic equipment book/bill increased on a 3-month average basis (Chart 3) although both seasonally and non-seasonally adjusted equipment orders declined (Chart 4). Shipments also decreased (Chart 5).
3/12 growth rates of electronic equipment orders and shipments were both in negative territory but order growth may have reached its low turning point (Chart 6). However all electronic equipment categories saw sequential order declines in November vs. October (Chart 7).
Equipment inventories generally declined (Chart 8) however the ratio of inventories/orders rose as orders dropped (Chart 9).
U.S,. vehicle shipments increased (Chart 10) but aircraft shipments decreased sequentially from October to November (Chart 11).
Military electronics are a shrinking portion of the U.S. electronic equipment mix (Chart 12) as both shipments and orders of defense electronic equipment declined in November (Chart 13), led by Search & Navigation equipment (Chart 14).
U.S. Defense Capital Goods bookings softened (Chart 15) as their book/bill dipped to near 1.0 (Chart 16).
Electromedical, measurement & control equipment orders and shipments declined (Chart 17), as did those for communication equipment (Chart 18) and computer gear (Chart 19).
Domestic Passive Components – Possible Modest Recovery in 2Q’12?
Domestically produced component orders and shipments (excluding semiconductors) plateaued for most of 2011 (Chart 20) with orders bolstered by inventory building (Chart 21). It now appears that domestic electronic component growth has now corrected to match end market demand, suggesting that component growth could resume. Recently the component book/bill rose to 1.03 (Chart 22) as order and shipment 3/12 growth rates may be near their low turning points (Chart 23).
Domestically made non-semiconductor component shipments have lagged semiconductor shipments to N. America on a 3/12 growth basis and have been more volatile (Chart 24).
The U.S. PMI “leads” domestic passive component shipments by 1-3 months (Chart 25) and should give us warning of the timing of a component upturn.
“Eurozone Crisis and Hard-Disk Drive Shortage Impacting Spending.”
Worldwide IT spending is forecast to total $3.8 trillion in 2012, a 3.7% increase from 2011, according to the latest outlook by Gartner, Inc. In 2011, worldwide IT spending totaled $3.7 trillion, up 6.9% from 2010 levels.
Gartner has revised downward its outlook for 2012 global IT spending from its previous forecast of 4.6% growth. All four major technology sectors computing hardware, enterprise software, IT services and telecommunications equipment and services are expected to experience slower spending growth in 2012 than previously forecast.
"Faltering global economic growth, the Eurozone crisis and the impact of Thailand's floods on hard-disk drive (HDD) production have all taken their toll on the outlook for IT spending," said Richard Gordon, research vice president at Gartner.
The Thailand floods, that left one-third of the country under water, are having serious implications for businesses worldwide, particularly with computer and storage purchases.
"Thailand has been a major hub for hard-drive manufacturing, both for finished goods and components," Mr. Gordon said. "We estimate the supply of hard drives will be reduced by as much as 25% (and possibly more) during the next six to nine months. Rebuilding the destroyed manufacturing facilities will also take time and the effects of this will continue to ripple throughout 2012 and very likely into 2013."
Although large PC OEMs will see fewer problems than others in the industry, no company will be wholly immune to the effects on the HDD supply chain. Gartner has reduced its shipment forecast for PCs, which has impacted the short-term outlook for the hardware sector. The impact of HDD supply constraints on HDD and PC shipments in the first half of the year compound the cautious environment for hardware spending in general.
Telecom equipment spending is projected to show the strongest growth, with revenue increasing 6.9% in 2012, followed by the enterprise software market, which will grow 6.4% (see Table 1).
"With the Eurozone crisis causing uncertainty for both businesses and consumers in Western Europe we have adjusted our forecast, and we expect IT spending in Western Europe to decline 0.7% in 2012," Mr. Gordon said.
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Walt D. Custer
Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.
Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.
He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.