Industrial Production: Tech Worse Than We Thought

Yesterday, the Fed released the Industrial Production report for November. The market generally considered the headline number, which registered a decline of 0.6%, to be not as bad feared.

We always dig into the report to see how the technology industry fared. The news is not good. Below we show two sets of charts of Industrial Production: one set for the sub-category of Computers and Peripheral Equipment and one set for the sub-category of Semiconductors.

Computers and Peripheral Equipment

The first chart below presents data from February through October. This report was released in November. Starting in spring of 2008, growth virtually came to a halt. Production just managed to hit a minor peak in June and then started to fall off slowly. Clearly not a good thing but not exactly a disaster for the industry.

This next chart presents the data from February through November and was released yesterday. This time we display revised data for the June through September months. It can be seen that June wasn't a peak after all. Indeed, production for this sub-sector dropped off rapidly after May with the revised data 1% to 2% worse than the numbers that were initially released. If there is anything hopeful in the chart below, it is that the decline in production seems to be slowing down a little.

Semiconductors

The next two charts look at Semiconductors. In this first one, the data from February to October is presented. This was reported in November. Production hit a clear peak in July and began sliding.

This next chart, based on yesterday's report, displays the data from February to November and presents revised data for the June through September months. Production was revised down approximately 1% from the month earlier report which can be seen in the steeper fall-off in the data.

Conclusion

It is no wonder many tech companies are lowering guidance and announcing layoffs. With production dropping like this it is understandable that management has begun to hunker down. The size of the downward revisions is especially surprising and alarming.

The question is whether this is as bad as it gets. Though the rate of decline in both sub-categories slowed in November according to yesterday's preliminary numbers, there is no assurance yet that Industrial Production in the tech sector has hit bottom. We may look at next month's report and see November's numbers revised downward, too.

Comments

[Jolly_Rancher:]

Investing in tech is too much of a gamble. The only people making any money are the lucky bubble investors and the employees cashing in their massive options. Everyone else is chasing smoke.

Good luck.
Jolly Rancher

2008 Dec 16 10:38 AM

[Robert Cast...:]

These numbers are for U.S. production. Everyone knows that most semiconductors are being manufactured in Asia. Also, Jolly_Rancher is right, the technology market is motivated by greed, and the technology companies lay off employees to boost stock evaluations so that they can collect on massive stock options. CEO salaries pay for their cappuccinos and martini lunches, and they can drop the to $0 and they won't flinch. Their real money comes from the tens of millions of dollars in the options. Take a look at any 10K and calculate it out. I've been analyzing the semiconductor industry for 25 years as President of The Information Network (theinformationnet.com), so I've seen it all time and again.

2008 Dec 17 10:55 AM