EBN's Electronics Buyers' Index strengthened to 38.3 in August from 36.7 in July, but the trend within the industry remains slightly negative, with OEMs and component suppliers still reporting sluggish order rates and minimal visibility into end-market demand.
Economists said the EBI confirms that the electronics industry is operating at a depressed level. Although some segments are showing signs of improvement, a return to strong growth is not expected until the end of the fourth quarter at the earliest.
The EBI Leading Index (EBILEAD) reflects some of the uncertainty expressed by purchasing executives polled in the latest survey. In August, the EBILEAD, the movement of which precedes the EBI by six weeks, rose to 51.6 from 49 in the prior month. The EBILEAD has stayed within this range of high 40s to low 50s since last December, and industry sources said a solid market improvement is unlikely soon.
"The EBILEAD index suggests that market conditions are unlikely to change significantly in the next few months and will be marked by continued slow improvement in most sectors but with weaker-than-normal prices and lead times," said Jim Haughey, EBN's staff economist.
Still, the latest EBI data indicate the industry rode the first half's strength through the middle of August. Only two segments of the index, inventories and prices, fell during the month, with inventories posting a negligible decrease to 29 from 29.3 in the preceding month. The pricing index dropped to 34.9 in August after remaining steady at around 37 for several months.
"The stall in reducing inventories in electronic component end markets is likely largely due to the spring slowdown in the pace of the economic recovery after the quick start during the winter," Haughey said.
Noticeably, in the past five months none of the EBI's eight segments have risen above 50, the midpoint between industry expansion and contraction. In fact, most EBI sectors except for production, which rose briefly to 50.7 in April, have been stuck either below 40 or only slightly higher in the past 18 months.
In August, the purchased electronics materials index rose to 40.6 from 37.4, while vendor deliveries climbed to 37.2 from 35.7 in July. Production rose for the second consecutive month, to 42.2 from 40 in the prior month, while unemployment, the weakest segment of the index, rose to 34.9 from 32.9.
What's keeping the electronics market from climbing at a more steady pace? The general economic conditions remain a concern, as seen in a report last week from the Conference Board showing a sharp dip in the August Consumer Confidence Index to 93.5 from 97.4 in the prior month.
"The Consumer Confidence Index is now at its lowest level since November 2001," said Lynn Franco, director of the Conference Board's Consumer Research Center, in a statement. "The month-to-month decline in the Present Situation Index is a strong signal that business conditions have yet to turn around. It also suggests that consumer spending is not likely to gain momentum any time soon."
Other economists said some of the latest data may merely reflect the traditional weakness most sectors of the economy experience during the summer months, in addition to the negative impact of investor apathy on the stock market. While the economy is not in the best shape, several sectors are humming, with auto and housing sales steadily rising on the strength of hefty manufacturers' discounts and low interest rates, respectively, they said.
"It's not really so bad," said Craig Thomas, an economist at Economy.com Inc., West Chester, Pa. "This long-running condition has not gotten many households too overly concerned. We're still out there buying houses and other stuff at a pretty good pace."
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