Crude oil prices have fallen more than 20 percent in the last month as fears have persisted about several segments of the global economy. The Wall Street Journal reports that the decline continued Monday in Asian trading, and Jim Ritterbusch, an analyst at Ritterbusch & Associates, told the paper that he would not attempt "to pick a bottom to this price collapse."
He was being smart. The global economy is getting hammered on several fronts, and this is being reflected in lower crude oil prices, which historically (absent of geopolitical factors) tend to foretell the relative strength of key economies by several months. In Europe, several countries continue to sink deeper into an economic quagmire that is threatening the euro's viability. China's manufacturing sector has slowed slightly in recent weeks. In the United States, the "jobless recovery" and persistent worries in the financial sector have combined to depress the equity market. Last Friday, the Dow Jones industrial average plummeted 275 points to erase all gains made this year.
The situation holds deep challenges for tech manufacturers. Continuing worries about stubbornly high unemployment rates could make buyers skittish during the important holiday buying season. Furthermore, corporate IT spending could be squeezed if enterprises unsure of growth trends clamp down on equipment purchases and hold the line on hiring.
The bad news has some silver linings, though. The same foggy economic environment holds promise for enterprising technology companies. Inflation remains muted, and component pricing will likely remain stable for a while longer, giving high-tech manufacturers better visibility into supply conditions. Companies providing suites of productivity enhancement tools and software applications tend to perform better during periods of slow growth as managers try to leverage available resources to boost profitability. Falling oil prices could also be beneficial to logistics companies and other transporters, which may pass on gains from lower costs to customers, including technology equipment makers.
In the past, many technology companies have seized the opportunities of slower growth to enhance research and development activities in anticipation of being well positioned for the rebound. Deep-pocketed semiconductor companies like Intel Corp. (Nasdaq: INTC) are renowned for increasing capital expenditures during market contractions. They leverage their cash advantage to gain competitive advantages and push farther away from rivals.
Consumers may also get a breather from falling oil prices. After months of paying what some American consumers consider sky-high prices for gasoline, the downward pricing trend in crude oil delivery just ahead of the summer driving season may encourage more families to hit the road more often and for longer trips. Some of the extra savings may go into buying a tablet or an e-reader for that long road trip.