U.S. Economy Teeters on Recesion; Fed Reacts Aggressively; Purchasing Managers' Index Bounces Back

With fears of a recession and 4Q’07 U.S. GDP growth only 0.6% ( Chart 1 ) the Fed reacted swiftly by cutting interest rates twice in a week by a total of 1.25% ( Chart 2 ). Past experience tells us that it takes 12-18 months for a rate cut to rekindle economic growth. Clearly the Fed was worried enough about the U.S. economic slowdown that it was willing to lower interest rates sharply in spite of inflation fears.

Surprisingly, the January ISM (Purchasing Managers’) Index rebounded slightly ( Chart 3 ) returning (barely) into growth territory with a reading of 50.7. It will be interesting to see if this January ISM index increase was a 1-month blip or if the domestic economy experienced modest growth in 2008.

	Chart 1

	Chart 2

	Chart 3

Global Electronic Equipment Production Growth Takes a Breather

The 3-month (3/12) growth of electronic equipment ( Chart 4 ) softened in all geographic areas – except strangely the United States. Thanks to the ever strengthening euro/weakening U.S. dollar ( Chart 5 ), European electronic equipment production appeared to be growing nicely (when expressed in U.S. dollars) but is almost flat in euros ( Chart 6 ). While the “minor” European equipment sectors are showing little change, communications equipment (base stations?) has been dropping since early 2006 while surprisingly computer production has been climbing               ( Chart 7 ).

	Chart 4

	Chart 5

	Chart 6

	Chart 7

The Japanese yen has strengthened significantly versus the dollar since mid-2007 ( Chart 8 ). Japanese electronic equipment production ( Chart 9 ) has been flat aside from normal seasonal effects for at least three years.

	Chart 8

	Chart 9

In the United States electronic equipment orders rebounded in December ( Chart 10 and Chart 11 ) thanks to both communication equipment and computers.

	Chart 10

	Chart 11

Seminconductor Business Cycle Stalled

December 3-month (3/12) global semiconductor shipment growth was only +2.5% ( Chart 12 ). However, this “growth” ( Chart 13 ) is a bit misleading as SIA chip shipments are reported in U.S. dollars. Presumably there is significant “exchange rate” inflation as strong euros and yen are converted to ever-weaker dollars. Semiconductor shipments to Europe ( Chart 14 ) have declined recently (in euros).

	Chart 12

	Chart 13

	Chart 14

Although Japanese electronic equipment growth is minimal, its printed circuit board production has been climbing since 2005 ( Chart 15 ). In North America rigid PCB shipments were down 8.9% in 2007 compared to 2006 (not counting significant shutdowns by Photocircuits, Northrup Grumman and others). ( Chart 16 ) shows order & shipment growth and book/bill ratios for December North American rigid and flexible circuits. ( Chart 17 ) provides rigid PCB monthly orders and shipments for 2006 compared to 2007 based upon the IPC statistical survey.

	Chart 15

	Chart 16

	Chart 17

Metal Prices – Copper Stable; Tin, Gold & Silver Skyrocket

Thanks to a global economic slowdown (and stabilized demand), copper pricing has not increased over mid-2006 levels ( Chart 18 ), but tin  
( Chart 19 ), gold ( Chart 20 ) and silver ( Chart 21 ) have been rising significantly.

	Chart 18

	Chart 19

	Chart 20

	Chart 21