June Sees a Downturn in Electronic Demand and Manufacturing

For the first time in three months, global electronics production experienced a contraction in June, with the rate of decline being the fastest since January.

June's PMI was 47.6, indicating a greater contraction in the global electronics industry compared to May's figure of 47.9. This decline was the most severe in three years and was largely due to worsening sales.

The S&P Global Electronics Purchasing Managers' Index (PMI) is derived from the feedback of purchasing managers across the global electronics manufacturing industry. The PMI, which includes indices such as new orders, output, employment, suppliers’ delivery times, and stocks of purchases, acts as a single-figure indicator of the electronics sector's health.

Respondents often attributed this downturn to weak demand resulting from economic instability and inflation. Three out of the four monitored sub-sectors, including Consumer electronics, saw a decline in output. However, Computing experienced growth, marking the most rapid increase since February.

New orders placed with electronic manufacturers decreased for the fourth consecutive month in June. The drop in new orders was sharp, the most significant since the year's beginning, which respondents associated with weaker demand in the U.S., Europe, and China. The Consumer, Computing, and Industrial sub-sectors saw drastic decreases, while Communications saw an increase for the first time in four months.

Global electronics companies saw an increase in employment for the 33rd consecutive month, mainly due to vacancies being filled after resignations. However, the rate of job growth was marginal and the joint-lowest in the ongoing expansion period. Industrial companies had the best staffing trends, while Computing and Consumer electronics companies experienced a decline.

In the second quarter, global electronics manufacturers saw a slight increase in average cost burdens. Higher prices were ascribed to increased costs of raw materials, energy, and wages. Nonetheless, some survey participants noted that weak demand for inputs and favorable exchange rates mitigated price increases. Computing had the highest increase in input prices at the sub-sector level, while Consumer electronics saw a general stabilization of cost burdens.

Despite lesser cost pressures, June saw a rise in selling price inflation for the first time in 2023, although the increase was modest and less than most increases over the previous two and a half years. Companies often passed on the higher costs to their customers. Only the Industrial sub-sector saw a quicker rise in prices in June, while there was a slowdown in Computing and price declines in Consumer and Communications.

There was a decline in the backlog of work at global electronics manufacturers at the end of the second quarter, making it 12 months of consecutive decreases. The rate of decrease was the slowest since March, often associated with reduced new order inflows allowing companies to clear existing orders. All four monitored sub-sectors saw a decrease in backlogs in June.

Post-production inventory saw an increase for the second month in a row in June, the rate of accumulation was the strongest for ten months, albeit slight. This was usually linked to unsold goods being stored in warehouses due to reduced demand. The increase in Industrial and Consumer segments was partly offset by decreases in Communication and Computing sectors.

June marked the eleventh consecutive month where global electronics manufacturers reduced their input purchases. The contraction rate was the strongest in three years, driven by weak demand. All four monitored sub-sectors reported a decrease in purchasing midway through 2023, with Industrials leading the contraction.

Supplier performance in the global electronics manufacturing sector improved in June, with lead times shortening to their lowest since March. This was among the most significant improvements in the survey's history, often linked to reduced input demand enabling suppliers to deliver materials more promptly.

Pre-production inventory increased for the first time in three months, with respondents attributing this to orders placed during material shortages now being received and stored. Industrial and Consumer sectors saw an increase in stocks of purchases, while Communication and Computing sectors saw declines.