A Complex and Contradictory Economic Outlook

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Editor’s note: Shawn DuBravac, IPC chief economist, delivered a keynote at the EMS Leadership Summit at IPC APEX EXPO 2023. Here, Shawn provides an update on what is a complex and sometimes contradictory economic outlook.

At this year’s EMS Summit held at IPC APEX EXPO, I shared IPC’s economic outlook for 2023 and 2024. The electronics industry overcame significant hurdles and headwinds in 2022, thanks in large part to strong underlying demand. While many of those hurdles and headwinds have subsided, the industry faces new challenges in the year ahead. At the EMS Summit, I shared three key themes defining the year ahead.

First, the industry starts the new year on solid footing and a generally strong optimistic tone. Companies continue to report solid order flow. While fewer companies are reporting order growth than they did in 2021 and 2022, companies are still optimistic about the months ahead. Capacity utilization remains strong, and in the U.S., the electronics manufacturing sector has added about 35,000 new jobs in the last year. The industry has the highest employment levels it has had since 2009. Backlogs have settled as incoming orders have slowed and supply chain disruptions have dissipated, but overall, companies remain cautiously optimistic about the first half of the year.

Secondly, we are entering a period of subdued growth in the economy, which began in 2022 and will continue this year and push into 2024. At the start of 2022, our forecasts called for North American GDP growth of 3.7% in 2022 and 2.6% growth in 2023. The economy grew just 2% in 2023 and we now expect the economy to expand just 0.5% in the year ahead. Part of this decline was exacerbated by Russia’s invasion of Ukraine, but there are other headwinds as well.

Finally, we are past peak inflation, but inflation will remain elevated in the year ahead. Labor markets will remain tight and wage rates elevated. The labor force participation rate flattened out over 2022 at a level that is about 1 percentage point lower than pre-pandemic levels, primarily reflecting an estimated 2.5 million in excess retirements, as well as some impact from long COVID. Immigration has also been low in recent years. All this combines to keep pressure on wages and keep inflation higher for longer. This means that the Federal Reserve will also keep interest rates higher for longer as it seeks to slow inflation.

In the months since the release of our 2023 forecast at the EMS Summit, we have received additional data that supports our view. Inflation remains stubbornly elevated and that will push interest rates higher and keep them there longer than many might have expected. At the start of the year, the futures markets were even suggesting the Fed might cut rates in the back half of the year.

It is also important for leaders to recognize that growth is slowing, and the decline will not be even and orderly. The recent and sudden collapse of Silicon Valley Bank is just one example of the type of shocks that happen during an economic recession and companies should be vigilant against contagion that spreads from parts of the economy adjacent to our own industry. It is not events within our sector that catch companies off guard, it is the shocks outside our domain that pose some of the greatest risks.

This article originally appeared in the April 2023 issue of SMT007 Magazine. For more details about Shawn’s analysis of the tech industry, read a review of his keynote address here, and watch his Real Time with… interview here.


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