EBN's Electronics Buyers' Index rose in May for the second consecutive month, to 42.7 from 42.4 in April. The index, which slipped in March from a 14-month high of 42.8 in February, is expected to maintain a steady climb through the rest of the year.
The EBI has averaged 42.2 in the last four months, improving on a 32.2 average in 2001. But it is still far from 50, the midpoint between industry expansion and contraction.
The small rise in May was due to a two-point increase in the employment index, to 35.4 from 33.4, essentially offset by small declines in the orders, production, and inventory indexes. The EBI remains about 12 points below other major manufacturing indexes, including the Institute of Supply Management's Purchasing Managers Index, which is scheduled for release this week.
"The gap [between the EBI and other manufacturing indexes] is a measure of how relatively deeper the recession was in the electronics industry," said Jim Haughey, EBN's staff economist. "It shouldn't be interpreted as a lag in the timing of recovery in electronics, but rather as a measure of how far electronics has to expand to get back to the pre-recession level."
Only two segments of the EBI improved in May, as the electronics industry and other sectors of the economy continue to battle weak end demand and an unsettled international political climate. The sharpest declines occurred in prices, production, and vendor deliveries. Prices have remained low for more than a year and were last above 50 in December 2000. The May EBI shows prices falling to 37 from 41.1 in April, production slipping to 46.2 from 50.7, and vendor deliveries tumbling to 34.5 from 38.2.
EBN's Haughey said the index will gain traction in coming months, as indicated by an improvement in the EBI Leading Index to 51.8 in May from 49.6 in April. The leading index usually precedes the EBI by several weeks
Though cautious, some industry sources are equally hopeful.
"Semiconductor capital equip- ment spending is on at least a short-term uptick," wrote a purchasing manager responding to the monthly EBI survey. "Major customers are saying the second half should be very strong."
Most of the strength is coming from the general economy, where consumer spending remains strong. In May, consumer confidence, as measured by the Conference Board, edged up to 109.8, after dipping to 108.5 in April. Although the Present Situation Index climbed to 110.3 from 106.8, the Expectations Index dipped slightly to 109.4 from 109.6 in April.
"The latest retreat in expectations suggests that the pace of economic growth will not accelerate in the months ahead," said Lynn Franco, director of the Conference Board's Consumer Research Center, in a statement.
The outlook for the next six months remains cautiously optimistic. Some 24.9% look for business conditions to improve, compared with 26% in April.
"We have no indications that the economy is rebounding," said Delos Smith, senior business analyst at the Conference Board in New York. "We have a moderate economic expansion. The overall economy is not deteriorating, but it's not improving."
Industry observers said they expect businesses will begin to do their part to prop up the economy before the end of this year.
"Not only is there increasing confidence that profits are improving, but equipment bought before Y2K is obsolete now, at least by accounting standards," said Craig Thomas, an economist at Economy.com Inc., West Chester, Pa. "You're seeing generally improving conditions in the labor market. Inventories aren't being pared as aggressively, and companies are starting to hire. Everything we see is positive, but we're not out of the woods yet."