Fighting the recession
The consumer tech industry's response to the US government's stimulus package has been cautiously optimistic, reports E&T.
The US is the largest consumer electronics market and the bellwether for how any economic stimulus package can motivate high street - or more appropriately, shopping mall - spending.
The $784bn (£475bn) American Recovery and Reinvestment Act (ARRA) is the Obama administration's attempts to get the public back into stores by initially dropping the US equivalent of monthly PAYE taxpayments - otherwise known as 'withholding'.
It was cut by just over $30 a month for individuals and $65 for families on 1 April. This followed the $300-$1,200 rebate cheques sent to most US families as part of the Bush administration's 2008 stimulus efforts.
Since the financial crisis, many economists appear, on the surface, to have experienced a Damascus type conversion toward the issue of quantitative easing and encouraging spending on brown goods.
"We've been saying for quite some time that many types of consumer electronics have moved from being seen as luxuries to essential purchases," says Stephen Baker, vice president, industry analysis at the NPD group, one of the leading retail research groups. "A lot of that is not about perception, but how we are becoming a digital society. For example, as we get closer to the autumn, you see increased spending on laptops and other products that students need for the new academic year."
There was more evidence of this last month when Apple announced that the iPhone 3G S upgrade shipped one million units during its first three days on sale in the US - albeit at a heavily subsidised price of $99. A high proportion of buyers attributed their 'had-to-have' purchase decisions to productivity rather than fashion.
"You do have to be careful, though," says Steve Koenig, director of industry analysis at the US Consumer Electronics Association (CEA). "Changing consumer attitudes mean that our business has more resilience. It doesn't mean that it can completely buck a recession."
With unemployment still rising rapidly - and than the federal government expected - many families may use the tax break to make ends meet.
Nevertheless, while the CEA's data confirms a significant dip in sales growth, Koenig and his colleague Shawn DuBravac, the CEA's economist, said at the association's recent Digital Downtown event that this was slowing and appeared to be on course to bottom out by August at the very latest.
Spending dips usually run ahead of formal economic data. Therefore this would imply an end to the recession in the US before the vital fourth quarter - including the Thanksgiving and Christmas holidays.
The association's current forecast (which measures factory as opposed to retail sales) predicts a dip of just over half a per cent - flat in statistical terms. As its analysts continue their hunt for signs of recovery, they will attempt to assess and quantify benefits from the stimulus package alongside general economic trends - no easy task.
For instance, you could argue that in one market segment - flat panel displays (FPDs) - the stimulus may have hurt consumer electronics spending. ARRA included an extra $650m for the coupon scheme that subsidised the cost of $50 converter boxes for existing TVs so that households did not need to buy new ones to receive broadcasts after the analogue switch-off. Most other governments are likely to follow this route, rather than offer pay-offs for scrapping TVs, when they go to all-digital broadcasting.
While the CEA's data shows a concerted effort by the industry to run down flat panel display inventories since the end of 2008 (see chart), the market itself is doing relatively well, with unit sales up 32 per cent. However, revenues are down 70 per cent - reflecting more traditional consumer electronics price pressures.
FPD sales seem to have moved into a second phase regardless of the recession. At the beginning of the year, more than half were for screen sizes of 40in and above, implying that they represented the main household TV. Today, the figure is closer to a third, suggesting that consumers are buying additional, smaller displays for 'secondary' locations.
A more intangible aspect of trying to separate out the stimulus' impact on consumer electronics comes in the shape of 'sentiment' - and during any downturn our obsession with hard figures makes it easy to forget just how important an influence this is.
If the CEA's analysts are more positive today, it is not just the hard numbers from the warehouse, but also reports from the association's membership that give them cause.
The CEA's industry advisory panel - which is composed of manufacturers, retailers and distributors - had been negative at the beginning of the year, according to DuBravac, but it has now coalesced around a figure of minus half a per cent for 2009 (almost identical to the economic forecast) and 2.9 per cent growth in 2010.
He added that the implied transition in the market and the contrast with earlier panel data suggested again that the recovery will start in the second half of this year.
NPD Research tracks consumer sentiment and, according to Baker, this is treading a similar path. "We are seeing improvements in the outlook in that consumers feel better about the state of the economy overall, even though they may not feel that great yet about their own circumstances," he says. "That is translating into significant changes in intentions to spend and matches up with some of what we're seeing in retail sales as well as other data out there."
Spend to save the economy
The widespread belief has been that the US economy is pulled along by spending. Government push is bad, or at least that has been the perception post-Ronald Reagan. In this context, many analysts remain reticent about specifically saying just how much the stimulus has to do with improved sentiment on both sides of retailing.
However, it is also likely that the market pundits have spotted and remain cautious about an inherent tension in the market. Several companies announced heavy cuts to retail prices that reflected how tough shifting units remains and is likely to remain.
Other data showed that, while DVD underwent a 38 per cent drop in average wholesale prices in its first 24 months on its way to becoming one of the fastest growing product lines ever, Blu-ray disc has undergone a massive 47 per cent drop as it fights for attention.
A more practical way to look at these stimulus dollars, then, may be in terms of their impact on the recession's duration and persistence rather than its depth.
"The issue that gets forgotten sometimes is whether this will be a V-shaped recession, where we get out of things relatively quickly, or a U-shaped one, where we bump along the bottom for quite some time," says NPD's Baker.
"A lot of the feeling is that we are going to get the U-shaped version. This has been really nasty and it's going to take some time to get out of it. However, though you wouldn't yet say how much of that longer-term trickle-down you're going to get, that could be where the stimulus spending really does help right things."
This also takes greater account of further trickledown consumer spending that it is hoped will begin as spending on public infrastructure projects (such as broadband and smart grids) creates and preserves jobs. The withholding boost aside, most stimulus cash is still to be allocated by various federal agencies.
That may not benefit consumer electronics until later in 2010. However, if this is a lingering recession, the second wave may come at the right time.
The Japanese government has taken its cue from the Bush administration's consumer stimulus and is mailing ¥12,000 (£76.33) cheques to households.
Although the sum is relatively modest, things are happening. Consumer electronic sales overall have risen by 20 per cent since the programme began, according to market research group Gfk, and some product groups like FPDs are moving even faster than that.
The national consumer confidence index has also progressively risen to stand at 35.7 in May against 26.2 in December. However, so long as the number remains below 50, it means that those who are downbeat about their economic prospects outnumber the optimists.
Japan's more persistent problem, though, remains the ongoing strength of the Yen and the consequent drag on exports.
In recent weeks, it has fallen against both the dollar and the euro, but the 5 per cent drops since January need to be seen relative to 13-year and seven-year highs achieved respectively against those other currencies at the beginning of the year.
Japanese banks did not have anywhere near as great an exposure to sub-prime mortgages as those in other regions, and the country's leading conglomerates have repatriated a lot of income from overseas businesses leading the yen to be seen as one of the main 'safe haven' currencies by investors, particularly given the fall in the dollar.
The Bank of Japan was due to issue its latest 'Tankan' economic outlook, which it uses to determine monetary policy, as this article went to press.
Meanwhile, Sony continues to cite the strength of its local currency as one of the various reasons why it is likely to suffer a second year in loss, despite ongoing restructuring efforts.
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