The electronics industry’s outlook for the rest of the year differs significantly from the overall U.S. manufacturing sector. The ECIA reports a steep decline in sales sentiment for December. That would bring the ECIA’s sales index below its baseline of 100 for the first time in 18 months.

      By contrast, the overall U.S. manufacturing sector grew in November continuing its 18-month streak. Computers and electronics led the six largest industries in expansion. The Institute for Supply Management’s PMI has remained well above its 50 baseline – in the 60s range– for 18 months and demand remains solid.

The ECIA December component sales-sentiment forecast is expected to fall by -15.9 points from November down to 95.2 overall. The association tracks sales attitudes for electronics components and end-markets, which remain above 100 –104.5 – for December.

      For the past 11 months, the ECIA forecast has tracked the ISM’s: Overall growth with a few decelerations in the growth rate. ECIA pointed out that average fourth quarter growth for components is usually the lowest quarter during the year. Other factors that are likely stunting growth expectations include a strong climb in inflationary pressures accompanied by a slumping consumer confidence index; a labor shortage and the overwhelming supply chain crisis has harmed sales in every sector of the economy.

Still, there are no signs that component demand is waning. The industry’s biggest distributor, Arrow Electronics Inc., expects limited supply throughout 2022; has noted a rise in expediated orders; and anticipates further price hikes. CEO Mike Long told analysts on Arrow’s Q3 earnings call businesses continue to search for components.

      “The truth is, I had five a friends a year ago and I’ve got about 20,000 now,” he said. “People I didn’t even know of calling into the office. Now we are seeing increased number of expedites. […] So these expedite calls are not for one part, they’re really for all parts that we’re supplying that customer so they can get into manufacturing. So they each take longer, there is better information flow. But as I said, we probably saw more significant or what I would say emergency shortages over this quarter than we’ve seen since this started.”

       “With no end in sight to the stalled supply chain, manufacturers and retailers face an extremely risky and uncertain future,” said ECIA Chief Analyst Dale Ford. “On top of all of this, the ongoing debate in Congress over the budget and its implications for the fundamental structure of the U.S. economy has placed all industries on a very unstable situation.”

The December sales decline could also reflect a supply rather than demand-driven issue. ISM’s November report noted a backlog of orders for computers and electronics products. This could indicate an inability to produce given a lack of components.

Here’s the December breakdown by component type:

• Sentiment for electro-mechanical/connector components plummets by -21.3 points down to 94.4.

• The passive component index comes in lowest of all three categories at 91.1 in December.

• Semiconductor sentiment is slightly more resilient as December is expected to drop by -12.5 points to 100.0 in December.

• Capacitor and resistor sentiment falls below 90.0 for December.

• On the positive side, the memory and MCU/MPU categories both achieve sentiment revolving around 110.0 in December

ECIA’s forecast for end-markets found:

• Only three markets come in under the 100.0 threshold looking toward December – medical electronics, mobile phones and computers. They remain in the laggard position they occupied in November when mobile handsets were the only segment under 100.0 and medical electronics and computers were at or slightly above 100.0.

• The greatest optimism for November and December continues to be found in industrial electronics and consumer electronics joined by avionics/military/space.

      Expectations for Q4 and Q1 2022 remain positive. ECIA survey results for Q4 2021 show that 64 percent of respondents expected growth in Q4 2021 and this remains stable looking toward Q1 2022 at 62 percent of respondents. Semiconductors measure the highest level of optimism with over 70 percent expecting growth in both Q4 and Q1. The principal difference between semiconductor expectations for Q4 and Q1 is a much smaller percentage expecting growth above 5 percent.

      All component categories show a trend toward expectations for growth between 1 percent and 3 percent in Q1 2022 compared with Q4 2021. While higher growth expectations are being tempered looking forward, they still provide an optimistic picture for the continued long-term growth of electronics component sales.