EBN's Electronics Buyers' Index (EBI) barely budged in January as companies across all segments of the industry hunker down with the rest of the global economy to await the next capital spending boom and the resolution of the Iraq crisis.
The index rose less than half a point in January, to 37.1 from 36.8 in December. The latest survey results show the continuation of a depressed pattern that has kept the EBI since October 2000 stuck below 50, the midpoint between industry expansion and contraction.
Economists and electronics purchasing executives cite the possibility of war in the Middle East as a major distraction that has further worsened the problems posed by reluctance at many companies to increase their IT budgets.
"We're waiting to see what the forecast for war brings," a survey respondent wrote.
"If I'm planning on buying some new computers, then I think I might wait until I know what's going to happen with Iraq," said Craig Thomas, an economist at Economy.com Inc., West Chester, Pa. "We're trading a stronger economy for this standoff with Iraq."
Still, even with a successful resolution of the Iraq conflict, the outlook for the electronics industry and the U.S. economy the first half of this year doesn't look especially positive. On Tuesday, the Conference Board reported its Consumer Confidence Index fell to 79 in January from 80.7 in December.
"Overall readings continue to reflect the country's lackluster economic activity," said Lynn Franco, director of the Conference Board's Consumer Research Center, New York.
In January, the EBI Leading Index, which usually moves ahead of the main index by several weeks, was relatively unchanged at 51, from 50.7 in December. The Leading Index has now dropped three points since hitting 54.1 in November, pointing to a soft first quarter.
EBI survey respondents said they expect their businesses to be slightly better this year than in 2002 but not by much. Identified growth areas are few and limited to sectors like the military where government spending is expected to steadily rise for the first time in years.
"We see a flat to down 2003 and no thought of increases until the fourth quarter," another respondent wrote.
That sentiment is supported by the January EBI numbers. All eight segments of the index are still below 50, and in most cases, about 10 to 18 percentage points below the expansion level. Electronics production leads the pack at 42, up from 36.4 in December on expectations of a short-term inventory replenishment that some analysts believe is bound to happen, especially within the distribution channel.
Inventories dropped in January to 30.9 from 34.9 in December; prices fell to 32.7 from 36, and orders weakened slightly, to 38.2 from 40.5, a three-month high. The quantity of purchased electronic materials strengthened to 40.9 from 36.4, and export orders climbed to 40.4 from 39.1. At 32.2, employment remains among the weakest segments of the EBI.