5 Top Economic Headlines Impacting You

The global electronics manufacturing sector is always grappling with economic volatility, shifting demand, and geopolitical uncertainty. Here's a quick guide to the latest economic news affecting electronics and some actionable steps for managing procurement and supply chain impacts.

Economic Slowdown in the North American Electronics Sector

Just the Facts

The North American printed circuit board (PCB) sector has faced significant headwinds in 2024. As of July, the book-to-bill ratio for PCBs in North America dropped to 0.99, signaling that new orders are barely keeping up with shipments. PCB shipments declined by 21.2%, and bookings dropped by 25.4% compared to the same period last year.

In contrast, the electronics manufacturing services (EMS) sector saw 1.9% growth in shipments and a book-to-bill ratio of 1.21. However, EMS bookings also fell by 8.3% from the prior month, indicating potential market instability.

Year-on-year and year-to-date growth rates provide the most meaningful view of industry growth, as monthly fluctuations may reflect seasonal effects and short-term volatility, making them less reliable for strategic decision-making.

Why It Matters

The book-to-bill ratio is an essential indicator for tracking the balance between new orders and shipments. A ratio below 1.0, as in the North American PCB sector, indicates a decrease in demand, raising concerns about oversupply, potential supplier instability, and delayed shipments. 

Actionable Steps

Monitor the financial health of key suppliers. Watch for warning signs like workforce reductions, factory cutbacks, or financial strain. Maintaining open communication with suppliers is critical to mitigating disruptions. Offering longer-term contracts or guaranteed shipment schedules can help stabilize your supply chain and protect against future shortages.

Interest Rate Uncertainty Delays Investment

Just the Facts

Rising interest rates in 2024 have slowed capital investment, particularly in capital-intensive sectors like electronics and semiconductors. Businesses are delaying investments in new facilities and major product developments, awaiting the anticipated decline in rates. The Federal Reserve is expected to start cutting interest rates by the end of 2024, with further reductions likely through 2025. In the meantime, the higher cost of borrowing has led to a cautious approach among businesses, delaying expansion plans.

Some design firms and manufacturers are reporting slowdowns in new projects, which may be linked to tighter budgets. While economic conditions remain uncertain, businesses are preparing to resume investment once rates begin to fall, but they are currently focused on preserving resources.

Why It Matters

Interest rates typically move in one direction for long periods, so a shift from rising to falling signals a major economic turning point. However, the current uncertainty surrounding future cuts means many businesses have adopted a wait-and-see stance. 

Actionable Steps

Focus on operational excellence while larger investments are on hold. Companies that aren't expanding manufacturing lines are still investing in efficiency improvements and optimizing existing resources. By making smaller, incremental improvements now, you'll be well-positioned for growth when economic conditions improve.

Geopolitical Risk Continues to Drive Reshoring

Just the Facts

Geopolitical tensions, particularly between the U.S. and China, have led many North American companies to reshore or nearshore manufacturing operations. Over 90% of companies have either reshored or are actively considering nearshoring to North America. Mexico has become a top destination for nearshoring, surpassing China as the largest source of U.S. electronics imports.

The Chips and Science Act is driving the reshoring of U.S. semiconductor manufacturing. By 2032, U.S. fab capacity is expected to increase by 203%, making the U.S. the second-largest destination for global semiconductor capital expenditures, behind Taiwan. The Act will ensure that the U.S. share of global fab capacity rises from 10% to 14% by 2032.

Why It Matters

Reshoring and nearshoring are key components of supply chain resiliency, which is increasingly important in mitigating geopolitical risks. Shifting production closer to home reduces exposure to global political conflicts and trade disputes, ensuring more stable access to critical components. Investing in supply chain resiliency not only protects businesses from sudden disruptions but also positions them to respond more quickly to shifting market conditions. With increasing U.S. semiconductor production, companies can further reduce reliance on global supply chains that are vulnerable to geopolitical instability.

Actionable Steps

Even if the decision to reshore or nearshore hasn't been finalized, now is the time to start preparing. Begin by identifying supply chain resiliency risks, particularly critical suppliers whose operations run through politically unstable or problematic regions like China. Dual- or triple-source from different suppliers to minimize disruptions. Also, evaluate potential reshoring or nearshoring locations and build relationships with regional suppliers. Leverage government programs like tax incentives and subsidies to ease the transition toward regional manufacturing.

Example

China's stockpiling of rare earth materials has highlighted the urgency of securing alternative suppliers. Although sourcing from new critical suppliers can take time, it offers long-term stability. The U.S. government's focus on reducing reliance on China, particularly in semiconductors, is prompting many companies to invest in domestic and regional supply chains to mitigate geopolitical risks.

EV Growth May Drive Component Shortages

Just the Facts

The electric vehicle (EV) market, particularly in China, is growing rapidly. Companies like BYD are now producing more EVs than Tesla, driving up demand for key components such as MOSFETs, IGBTs, and advanced battery cells. This surge is creating shortages and extending lead times for companies in related sectors.

Why It Matters

The surge in EV demand has created competition for parts used across multiple industries. This isn't the first time the electronics industry has faced such challenges—remember the MLCC (multi-layer ceramic capacitor) shortages a few years ago? Many manufacturers struggled to secure components due to overwhelming demand from sectors like automotive and mobile devices. Similarly, companies outside the EV market may face shortages or extended lead times as EV manufacturers scoop up critical components. Preparing ahead of time is crucial to avoiding similar supply chain disruptions.

Actionable Steps

Start by identifying components in your products that may also be used in EVs. Components like MOSFETs, IGBTs, capacitors, and battery cells are often shared across industries. Collaborate with engineering and design teams to cross-reference any components used in EV manufacturing. A useful clue to identify high-demand parts is to look for components that also have an automotive-approved version, as these are more likely to be sourced by EV manufacturers. Additionally, consult with your suppliers to determine how much of their production is allocated to the EV sector. Prioritize long-term contracts to secure supply and avoid shortages.

New Trade Restrictions Announced

Just the Facts

As of August 1, 2024, the tariff on semiconductors with a country of origin in China was raised from 25% to 50%. Additional tariff increases are expected in 2025 and 2026 as the U.S. works to protect national security and reduce reliance on Chinese technology.

China is a significant player in the global semiconductor industry, producing approximately 22% of the world's total semiconductor volume. However, much of this output focuses on mature technologies rather than cutting-edge chips due to U.S. export restrictions that limit access to advanced manufacturing tools. China's chip production has surged, especially in older technologies, which has led to concerns about potential overcapacity.

Printed circuit boards (PCBs) and printed circuit board assemblies (PCBAs) with a country of origin in China remain subject to 25% tariffs, though some exclusions for specific configurations have expired.

Why It Matters

The increase in tariffs on semiconductors with a country of origin in China will substantially raise costs for companies relying on these imports. The prospect of further tariff increases creates uncertainty, driving the need for procurement teams to develop more resilient supply chain strategies.

Actionable Steps

1. Assess Risk: Begin by checking your Approved Vendor List (AVL) for parts with a country of origin (CoC) in China.
2. Understand Cost Impact: Determine whether any CoC China tariffs are currently being accounted for in your cost of goods or overhead expenses. This includes reviewing how your electronics manufacturing services (EMS) providers are handling and representing these tariffs in their pricing. It's crucial to have a clear understanding of how much of your material spend is exposed to these additional costs.
3. Scope Risk and Mitigation: With this information, scope the extent of your exposure to CoC China components. Once the risk is quantified, develop appropriate mitigation strategies such as second sourcing critical components or designing out parts with Chinese origin in favor of alternatives from unaffected regions like Taiwan or South Korea.

Here's What's Next

Thank you for investing your time in understanding these crucial economic shifts. If you'd like to dive deeper into similar topics, check out our additional resources:

• Octopart The Pulse 
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