Computer Dip to End in 2013

After four consecutive years of decline, total U.S. production of computers and peripheral equipment will finally increase in 2013. Our  latest forecast calls for a 4% gain in output this year after a 4% drop in 2012. The growth will be sluggish in the first half of this year due to slashed federal spending, the expiration of the payroll tax holiday on Jan. 1, and all of the uncertainty caused by the political wrangling in Washington.

Fortunately, the negative effects of these issues will diminish as the year progresses, and by the second half of 2013 overall economic activity will rise noticeably. Barring some unexpected shock to the economy, 2014 will see above-average growth, in the range of 4%. This will spur accelerating demand for new computers and related equipment from both businesses and consumers. The rise in demand will be sufficient to generate an increase in production volume for U.S. manufacturers this year and next.

It may come as a surprise to many that the U.S. computer industry has just suffered through four years of decreasing production. This industry was flying high in the middle of the last decade. Total output was growing at double-digit rates during the four years prior to the Great Recession. But since hitting a peak in 2008, domestic production of these goods has dropped by 45%.

If you look only at the financials, U.S.-based computer companies are enjoying a seven-year uptrend in corporate profits, which in 2012 were up an estimated 75% vs. 2011. This means that computer and electronics companies are currently faced with the same conundrum that many other industries are facing: They are sitting on large piles of cash, and they are not sure what to do with it. But until consumer demand starts growing more rapidly, most companies appear content to sit tight.

America is the country that invented and developed the vast majority of the computer technology currently being used in businesses and homes today. We are also at the top of the list of the world’s largest markets for computer products. Investment by U.S. companies in computers and related equipment has increased substantially in each of the past three years. Clearly, we buy and sell a lot of computer equipment in this country, yet we seem to be manufacturing less and less of it. I expect the downtrend to end in 2013, but it remains to be seen how long the recovery will last.

When the computer companies do decide to invest some of their accrued profits, it is far from certain that they will do so in the U.S. This brings us back to the problem of declining manufacturing levels in this country. It has also become an acute issue for our national security. Cyber attacks from countries like China, Russia, North Korea, and Iran are increasing in both frequency and severity. This has become a form of warfare, so the computer industry will play an increasing role in both our nation’s economy and strategic defense. This means we should produce more of these products here, and we should purchase fewer of them from overseas.

The outlook for consumer electronics not categorized as computers is for steady but unspectacular growth this year. Expect gains in the range of 3% in terms of consumer spending. The data on employment and household income are expected to improve gradually this year, and this will support moderate growth in spending on electronics. At present there are no indications of any new technologies or products that will drive growth. That is, “the next big thing” has not yet been identified.
 

WHAT THIS MEANS TO YOU
 

•Electronic devices like notebook computers and smart phones will continue to shrink in size. Molders will have to step up their game in producing tight-tolerance yet durable parts.

•Technological improvements in resins and other compounds are driving the development of many new electronics products.

•Computer and electronics OEMs will step up efforts to collect and recycle used equipment