Powered by a big jump in orders, the EBN Electronics Buyers' Index (EBI) inched up in August, continuing its slow comeback from June's all-time low of 27.1.
Orders jumped to 33.4, the highest level since January and up 36% from 24.6 in July. This helped boost the EBI to 30.6 in August from 29.6 in the previous month. However, this was partially offset by a five-point drop in the quantity of materials purchased for inventory and a small deterioration in the employment index.
"Orders are up sharply and inventories are shrinking," said Jim Haughey, EBN's staff economist. "This is the right direction toward a recovery. But the production subindex only rose from 26.1 to 27, suggesting that more orders and less inventory are still needed."
The purchased electronics materials index rose slightly in August, to 25.3 from 25 in July, while production climbed to 27 from 26.1 in the prior month. Export orders inched downward, to 29.1 from 29.4 in July.
"[There are] signs of leveling off; it looks like things are reaching a bottom," said Daniel E. Laufenberg, vice president and chief U.S. economist at American Express Financial Advisors Inc., Minneapolis. "That doesn't necessarily mean profits will be accelerating or we'll be returning to levels of 1999 and 2000."
The EBI Leading Index, which usually precedes the main index by several weeks, picked up slightly, to 51.7 from 50.9 in the preceding month. It has been hovering around 50 for eight of the last 10 months. This indicates that no change is expected as market conditions will remain depressed for several more months.
Though the ongoing inventory correction is said to be near complete, it remains an issue for the technology sector and the overall economy, according to industry observers.
"Inventories have been dragging growth for the last four quarters," Laufenberg said. "Inventories fell by $38.4 billion [and] took nearly half a percentage point out of GDP growth in the second quarter. If they decline less dramatically [in the third quarter], it could add 1%. That doesn't mean the correction has to be over; it just has to slow up."
Though the tech sector remains in a slump, indications are that other sectors are exhibiting early signs of a recovery. The U.S. Commerce Department's July manufacturing report, released last week, emphasized the widening gap between electronics and the rest of durable goods manufacturing. July semiconductor shipments were off 5.6% from June, while orders dropped 26%. Telecom equipment shipments fell 6.4%, but new orders were up 18.3%.
Shipments of motor vehicles and parts were up 3.9%, and shipments of transportation equipment, computers and related products, machinery, fabricated metal products, and primary metals each showed marginal growth of less than 2%.
"The nonelectronic manufacturing sector is doing much better," Haughey said. "They had a crummy 2000. The only thing that was growing was electronics last year, so they didn't get as far out of line with inventories, and they reacted much quicker."
Countering the slight improvements, the Conference Board's Consumer Confidence Index, which declined in July to 116.3, dipped again in August to 114.3. This means consumers are less optimistic as the job market has become more unsettled