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IPC Chief Economist Shawn DuBravac has plenty to share about the state of the U.S. economy and how the electronics manufacturing industry might weather the storms of high inflation, rising interest rates, and low unemployment. It’s an interesting situation to find ourselves in as the flurry of opinion on a 2023 recession starts to take shape. Does it make sense to invest in PCB fab now? And how does the rest of the world feel about it? Shawn gets to the bottom line.
Nolan Johnson: Shawn, the economic outlook hasn’t been too rosy. I’m hoping our discussion today will provide some perspective for what to expect, especially for manufacturers in Q4.
Shawn DuBravac: I would characterize it as the playing out of dueling narratives. For context, in March 2020, we went into a very steep, quick, deep recession. This was a pronounced, unprecedented recession. Had it continued, it would have been by far the worst economic environment we have ever seen. Companies—and the federal government—responded to that abruptness very quickly. In the auto sector, you saw them cut production significantly, driving it essentially to zero in anticipation of a very deep recession. The government, through both fiscal and monetary policy, brought in unprecedented amounts of support for the economy. With no confirmation about how long it would last, we had several stimulus measures.
That stimulus drove demand, but you also saw shifting demand because people were moving away from services toward durable goods. They moved away from going to the theater. They moved away from the amusement parks. They moved toward products that they could put in their homes. At the same time, every business had to go online, so the demand for cloud storage and hardware shot up. These things were tied together when you started to pull the string.
Where does that leave us today? COVID remains a major concern, but in much of the world, we’re operating alongside it. People have gone back to buying and partaking in services. Demand for travel and hospitality has been very strong. And there has been an equally abrupt shift in the purchase of lots of these durable goods that did so well in the first 18 months. If you look at the big retailers, like Target, Walmart, Best Buy, they’re all feeling over-inventoried on the consumer side. At the same time, you have unprecedented inflation rates that are impacting consumers. It’s a narrative of shifting focus, priorities, and desires among consumers, and the headwinds that they face.
When you look at other parts of the industry, though, demand still looks at least somewhat resilient. There’s pent-up demand for what I’ll call supply, pent-up demand for production capacity. That produces this residual demand, a backlog that can feed future months. Now, that can change very quickly. But if you look at the industrial side of the economy, the demand is very strong. They have not been able to meet demand. It looks like that strength should continue at least through the fourth quarter of this year and probably into 2023. I’ve talked to big industrial companies, and I’m sure you have these conversations too. They’re saying, “We have backlogs that will take us well into 2023.” Thus, there ends up being these two competing narratives. In one narrative, demand is slowing. In the other, demand remains solid because of a strong backlog of orders that are waiting to be fulfilled.
To read this entire article, which appeared in the July 2022 issue of PCB007 Magazine, click here.