BANNOCKBURN, IL – The global economy continues to improve, in many ways recovering better than anticipated, according to a new report by IPC. Meanwhile, the electronics industry is looking at a prolonged recovery, says Shawn DuBravac, Ph.D., chief economist, IPC.

The electronics segment, which includes categories such as components, assembled boards, computers, communications equipment, and consumer electronics, increased a reported 34.2% in November, bringing  the year to-date growth to 24%. December data are not yet available.

In the US, IPC had expected a slowdown in the fourth quarter of 2020 and the early months of 2021, and while it did see indications of that slowdown in a variety of tracked variables, IPC did not see a slowdown to the extent feared, DuBravac says.

GDP in the fourth quarter came in at 4%. IPC’s current forecast is for nearly 3% growth in the first quarter, and the forecast for the first quarter and 2021 may increase in the coming months.

The most important development during the last month has been the downward trajectory of new Covid cases, hospitalizations, and deaths, DuBravac says. Vaccine distribution started slow but continues to accelerate. The US is on target to have vaccines widely available by the middle of the year. Vaccine availability is also finally starting to pick up in Europe. The European Commission recently announced they would have 100 million doses delivered by the end of March.

Despite high unemployment numbers in both the US and Europe, DuBravac says households appear ready to spend, with excess savings accumulated during the last year. DuBravac estimates US savings is about $1 trillion higher than it was prior to the pandemic. People are expected to start spending excess savings starting in the summer as Covid vaccines become more widespread, which should boost economic growth in the second half of 2021.

The industrial economy continues to improve, and in many ways, is the star of the recovery, DuBravac says. Several of the sub sectors, notably the auto and defense sectors, have both had V-shaped recoveries. Other sectors, like aerospace, are looking at long recoveries, given the particular nature of this recession and how it has adversely affected industries like commercial air travel.

The labor market is experiencing continued weakness. The US economy added 49,000 new jobs in December, and while the unemployment rate has improved, the arithmetic was driven by fewer people looking for work. Europe has done a good job of stymying layoffs by supporting aid programs like short-time work initiatives that incentivize companies to retain workers, DuBravac says, but some of these programs are also set to expire this year.

IPC continues to expect a prolonged recovery in the labor market that will be shallow at times, with exceptions. The electronics industry in particular has done well. In the US, for example, manufacturing employment fell nearly 11% peak-to-trough. And manufacturing employment is still down nearly 5% from pre-pandemic levels. The overall labor market fared much worse, declining nearly 15%, and is still down 6.3%.

IPC doesn’t anticipate employment to move above pre-pandemic levels until 2024. On the other hand, the electronics industry could move above pre-pandemic levels of employment by the end of this year. Electronics industry employment is down 0.7% over the last year.

The federal government is pushing forward additional fiscal stimulus, with much of that stimulus showing up in the back half of 2021 and into 2022. The Federal Reserve continues to maintain their dovish perspective that inflation is not a near-term concern and that getting back to full employment should be the overriding priority, which creates an environment in which inflation can quickly become problematic, says DuBravac, and inflation has been accelerating.

Consumer prices are up 1.4% from last year, but that will increase to 2.5% by the end of 2021. IPC is seeing prices go up almost everywhere, in some instances significantly. Manufacturing input prices are increasing. Transportation prices have already risen significantly and are continuing to rise. IPC is seeing capacity constraints in a number of areas that are pushing prices higher. Commodity prices are also up. Copper for example, is moving toward an all-time high. Accelerating prices are probably the number one factor facing electronics manufacturers right now, DuBravac says.

The US economy will grow 4.9% in 2021. Europe will increase 3.5%, and China will expand 8.4%. New orders for durable goods in the US are up 6.3% from a year ago. The European economy fell less sharply than expected in the final quarter of the year. GDP for the EU fell 0.4% and 0.6% for the Euro area.

The global price of copper is up 32% over the last year. Crude oil prices are up 14%. The economy grew 4% during the fourth quarter, avoiding the double-dip recession that is currently hitting Europe. For the full year, the economy slipped 3.5%. IPC’s June 2020 forecast had the economy declining 6% for the year.

GDP fell 2.5% from the fourth quarter of 2019 to the fourth quarter of 2020. IPC has increased its first quarter forecast to 2.9% from 2.3%, and incoming data suggests IPC will likely raise its forecast again in the coming weeks.

The US economy added 49,000 jobs in January after losing 140,000 in December. The unemployment rate fell from 6.7% to 6.3%, but this was largely driven by individuals leaving the labor force and not actively looking for work, not a sign of the labor market strengthening in a material way. Civilian employment added 201,000 new jobs during the month. Average weekly hours rose to 35 hours, compared to 34.7 hours in December. This is the highest level since 2006 and suggests the demand for workers is strong, which could, in turn, translate into higher levels of hiring in the coming months, says DuBravac.

The manufacturing sector continued to expand, marking the ninth consecutive month of expansion. Manufacturing sentiment deteriorated somewhat last month, with the PMI index decreasing from 60.7 to 58.7. The New Orders Index decreased to 61.1 but remains solidly in expansionary territory. The employment index slipped to 52.7 but suggests firms are still hiring. The inventory index slipped to 50.8, barely in expansion territory. Inventories remain tight, and capacity also appears constrained. Supplier deliveries slowed during the month, and the backlog of orders grew. Tight inventory and growing backlog is helping drive prices higher.

Industrial Production continues to recover. After rising 1.3% in December, overall production increased 0.9% in January. Industrial production is now down 1.8% from a year ago. Industrial Production fell 16.5% from February to April. Manufacturing components increased 1% during the month and is 0.8% below last January’s levels.

Auto production declined 0.2% in January. December’s results were revised higher but still showed a 0.4% decrease in production. Auto production is up 4.2%.

Transit equipment production decreased 0.6% during the month. The sector is down 4% from last year.

Production in the information processing and related equipment sector decreased 0.6%. December’s results were revised higher but still showed a 0.1% decline. The sector is down 0.9% over the last year.

The industrial segment grew 1.3%, after growing 1.1% in the prior month. The sector is down 5.1% over the last year.

The defense and space equipment segment increased 1.5% in January after a gain of 1.4% in December. The sector is now up 4.7% over the last year.

Recovery in the industrial and manufacturing sectors continued in January. Overall, capacity utilization increased to 75.6% in January, up from 74.6%. Manufacturing capacity increased to 74.6 during the month, an increase of 0.73 percentage points. Computer and Electronic Product capacity was flat during the month, declining from 71.4% to 71.2%. Capacity utilization in Electrical Equipment, Appliance, and Components increased 1.66 percentage points to 73.9. Utilization in the Motor Vehicles and Parts sector fell slightly, dropping from 77.4 to 76.8. Finally, Aerospace and Miscellaneous Transportation Equipment sector saw utilization rates improve 1.5 percentage points to 71.9.

The European economy fell less sharply than expected in the final quarter of the year. GDP for the EU fell 0.4% and 0.6% for the Euro area. This compares to a 1% increase in the US during the same time period. Year-over-year, GDP was down 5% percent for the Euro area, 4.8% for the EU, and 2.5% in the US. Germany was up 0.1%, while France declined 1.3%. Italy was down 2%.

According to the first estimate of annual growth for 2020, GDP fell 6.8% in the Euro area and 6.4% in the EU.

The decline in economic growth will continue and even accelerate in the first quarter. DuBravac currently forecasts the Eurozone to decline 1.4% during the first quarter, driven by a 0.8% decline in Germany and a 2.7% decline in France. Italy will decline 0.6%, and Spain will fall 3%.

The unemployment rate in the Euro area was unchanged in December at 8.3%. The EU also reported unchanged unemployment at 7.5%. For the fourth quarter, employment increased 0.3% from the third quarter in both the EU and Euro area. Compared to the year-ago period, employment fell 2% in the Euro area and 1.7% in the EU. Employment in the Eurozone fell 2.3% in the third quarter, while it fell 2.1% in the EU over the same period. For the year, employment declined 1.8% in the Euro area and 1.6% in the EU. Europe avoided massive declines in employment like the US because it implemented government programs to keep workers in place, says DuBravac. Most notably, short-time work programs helped mitigate the impact of the pandemic on employment. These programs are expected to taper this year, so even as the economy recovers, IPC expects to see a small rise in unemployment.

Like the US, the Eurozone manufacturing sector started the new year off on solid footing. The Eurozone’s manufacturing PMI decreased slightly to 54.8 in January. This is the seventh straight month of expansion. Export-focused countries like the Netherlands and Germany saw some of the best manufacturing growth last month, suggesting the global recovery is aiding the manufacturing sector beyond what a recovery in the domestic market is bringing. This will likely continue to be the story through at least the first half of the year, says DuBravac. New orders increased rapidly during the month. IPC also saw an increase in back orders and a worsening of supplier delivery times, suggesting some constraints on capacity. Prices paid for inputs rose significantly as supply-side tightness intensified.

Covid-related restrictions reduced economic activity at the close of 2020. The manufacturing output index for the EU declined 1.4% for the month, after rising a revised 2.9% in November. Despite the decline from the prior month, manufacturing output in Europe is now higher than it was a year ago by 0.7%.

The Motor vehicle manufacturing production index declined 2.1% in December, after two months of strong output growth. Auto production in the EU is off 4.6% from a year ago.

The air and spacecraft manufacturing sector continues to struggle. The production index decreased 2.7% in December. The sector is down 22.8% from last year.

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