Electronics industry left out of profit recovery
At the first look of first-quarter industry operating profits, it's apparent that the sickest industry in the United States is electronics.
Although the electronics industry's loss narrowed slightly from the last quarter of 2001, it was larger than the losses posted in the motor vehicle, industrial machinery, transportation services, and oil industries, which are all also cyclical.
Industry operating profit data was reported as part of the GDP accounting system. It is the quarterly pretax profits reported by corporations, stripped of special charges, gains, and depreciation and with an adjustment added to include inventory profits or losses from price changes. Think of it as what is reported to the Internal Revenue Service.
The electronics industry in the first quarter lost $10.9 billion at a seasonally adjusted annual rate, a small improvement from the $13.3 billion loss in the fourth quarter of 2001. Industry profits have declined steadily since the summer of 1999, when they totaled $7.6 billion. In the summer of 1997, industry profits peaked at $25.4 billion. Now five quarters of losses have offset all industry profits since the beginning of 1999. The cumulative profit over the last 13 quarters is $0.
By comparison, all other durable goods manufacturers in the first quarter posted an aggregate profit of $17 billion, up from $1.1 billion in the previous quarter. The rise contributed to the sequential first-quarter profit gain of 22%, to $77.6 billion posted by all manufacturers, excluding electronics.
Similarly, for the whole economy except electronics, profits rose to $539.4 billion from $482.2 billion.
But the electronics industry may be faring worse than indicated. The electronics industry's profits are combined with the profits of the much smaller electrical equipment industry, which has had better results based on reports by major companies.
The only good news is that losses were reduced in the first quarter, putting electronics on track with other cyclical industries that also showed first-quarter improvement.
The outlook is for continued profit improvement into 2004. However, the current low level and recent plunge of electronics stock market indexes suggests that the financial market does not anticipate a return to profitability in the current quarter.