It was another rough month for electronics OEMs in October, despite the rosy outlook painted by several semiconductor executives in recent weeks.
EBN's Electronic Buyers' Index climbed only 1.7 points in October, to 44.3, from September's 42.6, keeping the index value at a level last witnessed during the 1990-1991 recession.
A small rise in the production index, which registered 48.1 in October vs. 43.0 in September, helped drive the EBI up. But the monthly barometer still remained below 50, the figure that demarcates expansion and contraction in the electronics industry.
"The index remains at a depressed level be-cause fewer than half of the respondents reported increasing orders, and the employment index continued to decline," said Jim Haughey, EBN's staff economist. "Historically, the employment index has served as a measure of sentiment on general economic conditions. Presumably, they are thought to be quite poor, currently."
In the past several months, many electronic-component companies, particularly in the semiconductor industry, have cut their workforces in an effort to curb expenses. The cuts have gone so deep that employment in the U.S. electronic-component industry has declined by more than 1% in the past six months, according to Haughey.
The employment index fell to 42.6 last month, compared with 44.1 in September and 57.7 in October 1997.
While third-quarter profit figures were better than expected for many electronic-component companies, the beefier bottom lines were due mostly to cost-cutting measures, not to purchasers having increased orders.
"The disparity in the numbers can partially be explained by psychology," said Tad La Fountain, an analyst with Needham & Co. Inc., New York. Electronics companies have not seen business worsen after the rate of decline they experienced this past spring and summer. "Not getting any worse seems like relief," La Fountain said.
October's new-orders index jumped to 44.1 from 40.9 in September.
The latest EBI leading-index value declined to 50.7, after two months of reading 51.5, suggesting steady or slightly rising market unit volume for the rest of the year. This is consistent with EBN's earlier economic forecasts, according to Haughey.
Since 1989, the movement of the EBI leading index has preceded the EBI by about four months.
Meanwhile, purchasers polled for the EBI report continued to complain about the current state of the business. One respondent said: "Asian and European markets are down and are affecting manufacturing companies. We're slow." And another: "The market is slowing."
By sector, the computer index has been below 50 since February, measuring 45.9 last month. And the communications index remained below the EBI benchmark, at 42.8. The components index registered 44.3, compared with 45.7 in September.