July Leading Indicators; China and the U.S. Rise, Europe Growth Slows
Markit Economics (now part of IHS) just released its July Purchasing Managers Indices by country and major region.
- The Global Purchasing Managers’ Index (a useful leading indicator) rose from 50.4 in June to 51.0 in July (Chart 1). PMI results varied by major country (Chart 2) with the U.S., China, Taiwan and Japan improving and Europe dropping (but still remaining in expansion territory).
- The U.S. recovered from its late 2015 and early 2016 decline (Chart 3).
- Asia was mixed (Chart 4) as China manufacturing moved back into expansion territory following an 18 month contraction (Chart 5).
- Japan (Chart 6) is still contracting but at a slower rate as its PMI moved near the PMI=50 “breakeven” line.
- Europe (Chart 7) felt the pain of Brexit as the UK PMI dropped sharply and many other European countries saw weaker July PMIs (Chart 8).
Worldwide Semiconductors Sales down 5.8% in 2Q’16 vs. 2Q’15 but up 1% vs. 1Q’16 (Charts 9-12)
The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $79.1 billion during the second quarter of 2016, an increase of 1.0% over the previous quarter and a decrease of 5.8% compared to the second quarter of 2015. Global sales for the month of June 2016 reached $26.4 billion, an uptick of 1.1% over last month’s total of $26.1 billion, but down 5.8% from the June 2015 total of $28.0 billion. Cumulatively, year-to-date sales during the first half of 2016 were 5.8% lower than they were at the same point in 2015. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.
“Global semiconductor sales increased slightly from Q1 to Q2 but remain behind the pace from last year, due largely to global economic uncertainty and sluggish demand,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Sales into Japan and China have been a bright spot midway through 2016, and a modest rebound in sales is projected during the second half of the year.”
- Semiconductor shipments to N. America appear to have passed their cyclical low point (Chart 13). They rebounded significantly in June. Be aware that monthly these shipments appear to be reported on a 4/4/5 week quarter thus amplifying the 5-week month of June.
- Custer Consulting Group’s semiconductor leading indicator points to continuing global semiconductor growth ahead (Chart14).
U.S. June “Factory orders” for Electronics
The U.S. Department of Commerce just released its June “Factory Orders” report, a more detailed version of the Durable Goods report published a week earlier:
- Second quarter 2016 vs. 2015 growth for domestic electronic supply chain is given in Chart 15. Noticeably weak were computer equipment, automotive and defense aerospace. Semiconductor shipments to N America were also down but they now seem to be correcting from overzealous orders las year.
- Chart 16 compares the growth of the supply chain on both an annualized (12/12) and 3-month (3/12) basis. The 3/12 “leads the 12/12. It suggests that computer and PCB order growth will contract further in the next few months.
- U.S electronic equipment orders weakened in June as they were barely above shipments (Chart 17).
- Order growth for most type of electronic equipment was flat or declining in June (Chart 18).
- Electronic equipment inventories are flat or declining (Chart 19)
- The instrument and control equipment sector remained dominant in the USA (Chart 20) but even its orders and shipments flattened in June (Chart 21).
- Automotive shipments have weakened significantly since the beginning of 2016 (Chart 22).
- Passive component orders and shipments have plateaued (Charts 25 & 26). This is not surprising as their recent growth rates were far in excess of semiconductor shipments (Chart 27).
Global Electronic Supply Chain 2Q’16 Growth Update
Here are our updated estimates of 2Q’16 growth of the world electronic supply chain. Note that these estimates are still very preliminary as many companies in our sector composites have yet to report their 2Q’16 financial results.
- Second quarter global electronic equipment sales up about 0.9% compared to the same quarter in 2015 (Charts 27 & 28). Firmer end markets and a weaker dollar (effectively inflating dollar-denominated growth) were key factors.
- Growth by sector is given in Chart 29,
Remember these are still early estimates.
Source: Company financials with Custer Consulting Group analysis
Russia's Roscosmos Space Corp to spend 259 million rubles to Develop and Create Electronics to Substitute Imports
Russia's Roscosmos space corporation will spend about 259 million rubles ($3.9 million at the current exchange rates) by 2020 to develop and create electronics to substitute foreign analogues in the country's aerospace equipment, according to the data published on Russia's federal procurement portal.
According to the data, the corporation plans to spend 50 million rubles in 2016, 52 million in 2017, 54 million in 2018, 56 million in 2019 and 47.4 million in 2020.
Russia switched to an import substitution policy in mid-2014, after the West imposed several rounds of sanctions against the country citing its alleged involvement in the Ukrainian internal conflict.
Imported products are currently replaced both with Russian production and goods from countries, which have not introduced sanctions against Russia.