Electronics Should See Stronger 2015

Whether measured by consumer spending or production, the electronics industry is almost always growing in the U.S. But the last four years have seen sub-par rates of growth in this sector. Other than the period just after the financial collapse, consumer spending on electronics in 2014 grew at its slowest rate in nearly two decades. And outside of the major recessions in 2001 and 2009, electronics production in 2014 grew at its slowest rate in more than two decades. But, for the first time in roughly a decade the electronics industry could be poised for some real improvement in 2015.

Disposable income is a leading indicator of consumer electronics spending, and it seems to be making a comeback. The annual rate of change in disposable income has been growing at a rapidly accelerating rate for about a year. The current rate of growth is virtually the fastest in eight years. The surge in the annual growth rate of disposable income seems like it will continue for several months, at least, as the monthly growth rates are above the historical average for the first time in about three years.

So, the growth rate in disposable income could be ready to break out of the downward trend it has been on the last 15 years. If it does, that would be a very positive sign for future consumer spending on electronics. Already, the rapidly accelerating growth in disposable income has resulted in accelerating growth in consumer electronics spending in December 2014 and January 2015. The acceleration in the annual rate of growth in consumer electronics spending will continue, as the month-over-month rate of growth has been accelerating for seven months now.

Accelerating growth in spending should lead accelerating growth in electronics production. The chart shows that that indeed is starting to happen. But, the rate of growth in production had been decelerating faster than the rate of growth in spending over the last four years. Therefore, it seems possible, if not probable, that there will be a sharper rebound in electronics production in 2015 and 2016 than there will be in consumer-electronics spending.

While electronics production is almost always growing and appears poised for significantly faster growth in 2015, capacity utilization at electronics manufacturers remains weak. In fact, capacity utilization has declined at an accelerating rate for the last year. Our business index indicates that capacity utilization could be near a bottom, but relatively weak utilization could mean that electronics manufacturers won’t be making significant capital investments in the next 12 to 18 months.