Weekly Industry Crib Sheet: Bleak Outlook for Semiconductor Manufacturing Equipment
September 23, 2013
Plus: MAPI: Manufacturing to Accelerate Through 2015 Industrial Robotics Sales to Grow 2 Percent Slump in Multifamily Homes Dulls Housing Starts Leading Economic Indicators up After Fed Stimulus Decision Jobless Claims Rise but Remain Underreported Global semiconductor manufacturing equipment spending will sink 8.5 percent in 2013 to $34.6 billion, according to a report from Gartner. Spending in the semiconductor manufacturing equipment sector will remain weak because of poor market conditions, which will also contribute to a 6.8 percent drop in capital spending. "Weak semiconductor market conditions that continued into the first quarter of 2013 generated downward pressure on new equipment purchases," Dean Freeman, Gartner research vice president, told The Wall Street Journal The prediction is even more bleak than the company forecast in June, which estimated sales of $35.8 billion for the year, a 5.5 percent drop. A dulling mobile phone market has caused capital spending to steadily decline, Gartner notes. Additionally, only a small cluster of companies are spending, as Intel, TSMC, and Samsung, the top three spenders in 2013, account for more than half of the capital total. However, Gartner sees more spending in the second half of 2013 from a more diverse group of companies. MAPI: Manufacturing to Accelerate Through 2015 A strong manufacturing output in the first quarter was followed by deceleration in the second quarter. But production is expected to expand with an overall growth of 2.2 percent this year, according to the quarterly Manufacturers Alliance for Productivity and Innovation (MAPI) U.S. Industrial Outlook. The report analyzes 27 major industries. Inflation-adjusted GDP increased at a 2.5 percent annual rate in the second quarter of 2013. Manufacturing declined at a 0.8 percent annual rate, a correction for the exceptionally strong pace of manufacturing production (5.2 percent annual rate) in the first quarter relative to meager growth in the overall economy. MAPI forecasts that manufacturing production will increase 2.2 percent in 2013, a deceleration from the 3.1 percent forecast in June 2013. A pickup is likely in 2014, with growth anticipated to be 3.2 percent; that forecast is down from 3.6 percent in the previous report. Manufacturing production should outperform GDP growth, which MAPI estimates will be 1.6 percent in 2013 and 2.8 percent in 2014. This most recent report makes an initial forecast for manufacturing production for 2015, predicting 4.1 percent growth, with GDP expected to grow 3.4 percent in 2015. "The outlook for 2014 and 2015 calls for close to a percentage point improvement in the growth rate each year," said MAPI Chief Economist Daniel J. Meckstroth, Ph.D., author of the analysis. "Consumer spending growth has remained remarkably stable because of surprisingly robust employment growth in the sluggish economy; the payroll tax increase is in the rearview mirror, and spending will accelerate in 2014; and households have low debt burdens and their wealth position is rising. "In addition, businesses are well positioned for making new investments in structures and equipment," Meckstroth added. "What is needed is more confidence about the future. With the Eurozone coming out of recession, export activity should pick up and provide a boost to business sentiment." MAPI anticipates that 14 industries will show gains in 2013, three will remain flat, and six will decline. Motor vehicles and parts production and household appliances are forecast to advance by 7 percent. Non-high-tech manufacturing production (which accounts for 95 percent of the total) is anticipated to increase 2.1 percent in 2013 and 3.1 percent in 2014. High-tech industrial production (computers and electronic products) is projected to expand by 5.2 percent in 2013 and 7.6 percent in 2014. Industrial Robotics Sales to Grow 2 Percent Global sales of industrial robots are projected to rise 2 percent this year to 162,000 units, according to a study by the International Federation of Robotics The study provides an annual look at overall trends in industrial robots. IFR expects robot sales to grow in North America, Brazil, South Korea, China, Southeast Asia, Central and Eastern Europe, and Turkey. China is seen as having the most potential, given its rapid manufacturing growth and relatively low level of saturation. Sales of robots to the nation increased 25 percent per year from 2005 and 2012, reaching 23,000 units in 2012, not including domestically built robots, which numbered 3,200. Japan will see a drop in robotics sales, due to the continued decline of its electronics industry, the report notes. Purchases will also be weak in European countries with weak economies, such as Italy, France, and Spain. Germany and the United Kingdom are expected to buy fewer robots after a surge of investments by the automotive industry during the past three years. Overall, IFR expects industrial robot sales to increase 6 percent per year between 2014 and 2016, with annual sales reaching more than 190,000 units. Slump in Multifamily Homes Dulls Housing Starts Contractors started construction on 7 percent more single-family homes last month than they did in July, but the good news was blunted by a sharp decline in the construction of multifamily dwellings. The U.S. Commerce Department reported that total housing starts last month reached a seasonally adjusted annualized rate of 891,000, an increase of 0.9 percent from August. That growth is lower than some economists predicted. Analysts polled by two national news agencies had anticipated a rate of at least 915,000. Multifamily housing starts, always more volatile, fell last month by more than 10 percent from July's numbers. The decline may be attributed to a spike in mortgage rates, which tend to make developers hesitant about starting new projects. "Following a solid run up in builder confidence over the past year, we are seeing a pause in the momentum as consumers wait to see where interest rates settle and as the headwinds of tight credit, shrinking supplies of lots for development, and increasing labor costs continue," said David Crowe, chief economist for the National Association of Home Builders Nonetheless, builder confidence about single-family home construction has been at its highest level in nearly eight years, according to the NAHB. Leading Economic Indicators up Following Fed Stimulus Decision The Conference Board's Leading Economic Index (LEI) gained 0.7 percent to hit 96.6 last month, compared to a 0.5 percent rise in July and no change in June. The increase beat economists' expectations of a 0.6 percent rise. Seven of the ten indicators that make up the index rose, including the interest rate spread, the ISM new orders index, average weekly initial jobless claims, and average weekly manufacturing hours. "After a brief pause, the U.S. LEI rose sharply in July and August, resuming its upward trend," said Ataman Ozyildirim, an economist at the Conference Board, in a statement. "If the LEI's six-month growth rate, which has nearly doubled, continues in the coming months, economic growth should gradually strengthen through the end of the year." The good news follows the sudden decision by the Federal Reserve to maintain its bond-buying stimulus program indefinitely. On Wednesday Fed Chairman Ben Bernanke said the unemployment rate is too high, and policymakers need more evidence the U.S. economy is improving before trimming the asset purchases. Jobless Claims Rise but Remain Underreported The number of people seeking first-time unemployment benefits rose 15,000 last week to a seasonally adjusted 309,000. But a backlog of unreported claims distorted results for the second straight week. The less volatile four-week average fell 7,000 to 314,750, the lowest in nearly six years. The Labor Department's figure for applications dropped last week when California and Nevada were unable to report all their data because of computer upgrades. A government spokesman told Bloomberg Despite an overall decline in jobless claims over the past few months, many businesses have not been hiring. Employers added an average of just 155,000 jobs per month since April. This was a major factor in the Fed's decision to not begin tapering its $85-billion-per-month bond-buying stimulus.