Planning for the year ahead is going to require a very strong stomach for all players in the US economy, including the high-tech sector, which has become very tightly woven into the larger consumer, manufacturing, and services markets over the last 10 years.
The equity market continued to stomp upward, with the major indices steadily increasing through the last month of 2010 and continuing in the first week of this year on a steady diet of positive reports indicating the global economy remains resilient. In the US, stronger signs are emerging that the economy is rebounding steadily, and even the dollar has managed to firm up against all other international currencies despite rising debt obligations.
In the high-tech industry, forecasts generally call for single- to double-digit sales increases for all segments, including semiconductor, manufacturing, and overall electronic equipment sales. The annual Consumer Electronics Show is chock-full this week with numerous forward-looking gadgets from major manufacturers jostling with each other for the bragging rights to the coolest electronic products. One would be forgiven for thinking the industry is in the middle of its strongest sales expansion ever.
Yet ominous signs keep popping up each time a celebratory cry gurgles up from a corner of the industry. Energy costs are going up: Crude oil prices have soared in the last three months and continue to push closer to $100 per barrel -- a certain sign the market sees demand growth continuing in the near future but also a nasty price hike that could hurt shipping and transportation and crimp consumer spending.
Technology companies must contend also with the sharp rise in other commodity prices in recent months. Copper and gold prices have shot up to new levels although the increases have been tempered in the last week as investors embarked upon a profit-taking stampede on concerns the strengthening US dollar could hurt commodities.
Higher commodity costs are worrisome for electronic companies, but this is a longer-term problem as most manufacturers have learned to hedge prices for shorter-term deliveries. Yet, China's planned curb on the export of rare earth metals is another worrying supply chain concern the industry must address with alternate procurement strategies.
Perhaps the more serious problem facing the electronics industry, as well as the larger economy in the US, is the uncertainty surrounding the country's high unemployment rate. On Friday, January 7, the US Department of Labor announced the latest monthly employment data showing employers added 103,000 non-farm positions in December, much lower than the 150,000 to 190,000 many economists were expecting. Yet, the unemployment rate dropped to 9.4 percent from 9.7 percent, with much of the decline a result of adjustment of data from the prior months.
The small payroll increase disappointed many, but the lower unemployment figure thrilled the market, leaving stocks wobbly, unsure which direction to head. Economists believe a minimum of 150,000 jobs would have to be added each month to make a more serious dent on unemployment. And even the Labor Dept. concurs.
"While we have seen steady job growth in the past year, faster job growth is needed in 2011 to help bring down the unemployment rate and put those Americans who lost jobs during the recession back to work," said Hilda Solis, Secretary of Labor, in a statement.
That's an understatement. Consumers gave the economy a much needed lift during the last recession, proving resilient even as corporations, though stuffed with cash, further slashed payroll and tamped down on expenses, including high-tech equipment purchases. Many people were expecting corporations to both boost technology equipment spending and increase payroll in the last months of 2010. That didn't happen.
Wrapping up 2010 with less-than-expected hiring will deliver a rude shock to the economy, and high-tech companies will feel the jolt. How do you plan for the future with so much uncertainty still clouding up the outlook?