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ISM Report Shows Encouraging Activity Amidst Core Electronic Sectors

Computers and electronic products were among the top-performing categories in January, according to a recently released market sector report from the Institute of Supply Management, or ISM.

ISM’s January PMI Index—a measurement of purchasing activity among industry suppliers—rose to 58.4%, signaling continued economic expansion.1 To a greater extent, the movement supports analysts’ views that the demand for durable goods—consumer and business electronic equipment included—is growing consistently. More importantly, the latest PMI Index shows the U.S. manufacturing sector grew for the sixth consecutive month, with the 58.4 reading marking the highest since August 2004, when the index was 58.5%.

The category of “electrical equipment, appliances, and components” also ranked high among the major sectors experiencing strength in new orders. Specifically, ISM’s new orders Index registered 65.9% in January, 1.1 percentage points higher than the seasonally adjusted 64.8%. More significantly, the rating marks the seventh consecutive month of growth in the new orders index. 2

Similar performance was seen in the “production index” component of the ISM report, which registered 66.2% in January. That represents an increase of 6.5 percentage points from the December reading of 59.7% percent, seasonally adjusted, and marks the eighth consecutive month the production index has registered above 50%. Note: An index above 51%, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

According to Norbert J. Ore, CPSM, C.P.M., chair of ISM’s Manufacturing Business Survey Committee, the January report provides “significant assurance that the manufacturing sector is in recovery. Both the new orders and production indices are above 60%, indicating strong current and future performance for manufacturing...This is a good indication that the impact of the recovery is expanding.”

ISM survey respondents confirm the positive activity in the electronics category—among other sectors—noting that electrical parts orders from the automotive arena are “very strong” and that commodity prices are moving up again. On the downside, some respondents said lead times continue to be a problem for electronic components.

This trend is reflected in ISM’s “supplier delivery index,” which rates the delivery performance of suppliers to various manufacturing organizations. As survey respondents suggest, delivery activity was slower in January, evidenced by a rating of 60.1%. 3

PRINTED CIRCUIT BOARD TRENDS

Newly released data from the Association Connecting Electronic Industries, or IPC, show softness within select categories of the electronic components sector. According to the report, rigid PCB shipments dipped 2% in January—the most recent period for which statistics are available. Meanwhile, bookings increased 19.8% year-to-date, and the book-to-bill ratio for the North American rigid PCB industry in January 2010 remained strong at 1.06.4

With regard to flexible circuits, shipments in January 2010 were down 4.1% but bookings were up 59.3% compared to January 2009. The North American flexible circuit book-to-bill ratio climbed above parity to 1.03.4
For rigid PCBs and flexible circuits combined, industry shipments in January 2010 decreased 2.1% from January 2009, as orders booked increased slight more than 22% from January 2009. The combined--rigid and flex--industry book-to-bill ratio in January 2010 held steady at 1.05.

“The best news from our January PCB surveys is the huge growth in orders compared to January of last year,” said Denny McGuirk, IPC president. “Sales are still down slightly from last year but are increasing steadily.”

(For more on this story, see the March issue of Metal Finishing.)

NOTES
  1. PMI Index: A reading above 50% indicates that the manufacturing economy is generally expanding, whereas a figure below 50 indicates contraction.
  2. Note: A new orders index above 50.2%, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders.
  3. Note: A reading above 50% indicates slower deliveries.
  4. The book-to-bill ratios are calculated by dividing the value of orders over the past three months by the value of sales billed during the same period. A ratio of more than 1 suggests that current demand is ahead of supply, which is a positive indicator for sales growth over the next two to six months.

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