IPC November 2022 Economic Outlook

IPC released the November 2022 Economic Outlook for Electronics Manufacturing Industry.

IPC released the November 2022 Economic Outlook for Electronics Manufacturing Industry.

In the last month, Federal Reserve Chairman Jerome Powell gave a highly watched speech suggesting rate hikes would begin to slow soon, noting that “slowing down at this point is a good way to balance the risks.”
The financial markets have begun taking the view that inflation is dissipating and the Fed would soon start to
pivot, suggesting rate hikes would diminish significantly after December. However, U.S. employment data for November suggests some inflationary pressures remain intact, at least when it comes to the labor market. Last month the data showed average hourly earnings grew at a 3.8% annual rate over the prior three-month average. But the most recent data, coupled with revisions to prior months, now shows a 6% wage growth over the last three months.

Elsewhere, inflationary pressures are moderating as the global economy continues to cool down. Commodity prices have declined as demand has slowed. For example, global copper prices are down 22% over the last year. Prices are still 27% higher than pre-pandemic levels, but prices are down from the all-time highs reached in spring 2022. The latest Drewry composite World Container Index of $2,284 per 40-foot container is now 78% below the peak of $10,377 reached in September 2021. Current levels are 15% lower than the 10-year average of $2,693, indicating a return to more normal prices, but rates remain 61% higher than average pre-pandemic rates in 2019 of $1,420. The New York Fed’s Global Supply Chain Pressure Index, which incorporates shipping and transportation costs, has fallen to 1, not quite back to pre-pandemic levels, but a significant improvement from the beginning of this year.

The manufacturing sector continues to hold up well, despite the economic slowdown. The slowdown has
brought demand and production back into balance and enabled many manufacturers to focus on backlogs. New orders for durable goods rose 1% in October and are up 10.7% from a year ago. A surge in orders for commercial aircraft and machinery in October led to gains across nearly all major categories. Machinery orders, which were weak in September, shot back in October with a 1.5% gain. Revisions to Q3 GDP also showed stronger business investment than previously expected, suggesting businesses are investing in domestic operations despite slowing demand. Orders for core capital goods were up 2.1% in October.
Unfilled orders rose 0.6% in October and are up 7.1% in the past year, suggesting many manufacturers still have strong backlogs.

Despite solid growth, we continue to remain somewhat cautious about the economic outlook.
Consumers continue to shift away from purchasing durable goods and returning to services, and this
trend is likely to continue. A meaningful portion of goods-related activity will likely continue to
soften in the year ahead. The Institute for Supply Management manufacturing PMI fell to 49%, the
first time it has dipped into the contractionary territory since the early months of the pandemic.

The economic environment in Europe continues to be a challenging one but recent data adds a bit of optimism to an otherwise pessimistic outlook. The German economy grew slightly more in Q3 than earlier data suggested, thanks in large part to consumers who continue to spend. Europe’s largest economy expanded by 0.4% quarter-on-quarter and the German economy is up 1.3% on the year.

There continues to be significant economic uncertainty, and this will continue to exert downward pressure on the economic activity of both consumers and businesses. The ongoing slowdown will continue in the coming quarters, and we are looking closely at any change in the rate of that slowdown.

ECONOMIC GROWTH

Real U.S. GDP growth in Q3 was revised higher from 2.6% to 2.9% annual growth. Upward revisions to consumer spending (0.3 percentage points), business investment (5.1% compared to 3.7% percent), government purchases, and net exports offset A downward revision. Corporate profits for the third quarter were down 1.1% from Q2, but still up 4.4% from a year ago. GDP inflation was revised higher to a 4.3% annual rate in Q3 compared with the prior estimate of 4.1%. GDP prices are up 7.1% from a year ago, well above the Fed’s target of around 2-2.5%.

2022
ECONOMIC GROWTH
(GDP % Change)
2023
ECONOMIC GROWTH
(GDP % Change)
2022
EXCHANGE RATE
(v. USD)
2023
EXCHANGE RATE
(v. USD)
UNITED STATES1.8%0.2%N/AN/A
CANADA3.2%0.3%1.361.32
MEXICO2.5%0.9%20.1320.54
EURO AREA3.2%-0.2%0.961.04
CHINA3.2%4.6%7.317.00

AUTOMOTIVE PRODUCTS

Auto production rose 2%, while nonauto manufacturing remained unchanged. Auto production is up 10.7% in the past year, while non-auto manufacturing is up 1.8%.

TRANSIT EQUIPMENT

Transit equipment production rose 1% during the month. The sector is up 10% over the last year and 17.8% from pre-pandemic levels.

INFORMATION PROCESSING & RELATED EQUIPMENT

Production in the information processing and related equipment sector rose 0.9% during the month. The sector is up 2.2% over the last year against strong comps and is 3.9% higher than pre-pandemic levels.

INDUSTRIAL & OTHER EQUIPMENT

The industrial sector rose 0.7% during the last month, hitting a new high. The sector is up 8.9% over the last year and up 8.4% from the start of the pandemic.

DEFENSE & SPACE EQUIPMENT

The defense and space equipment segment rose 1.6% to another new all-time high. The sector is up 6.1% over the last year and 14.7% since the pandemic began.