Fed exec tells NEDA conference economy will recover in 2009
By James Carbone -- Purchasing, 12/11/2008 2:00:00 AM
The U.S. economy suffered negative growth in the third quarter and won't recover until the second half of next year because cutbacks in consumer spending and a declining housing market, according to the vice president and regional director of the Federal Reserve Bank in Chicago.
Addressing the annual National Electronics Distributors Association conference recently, William Testa said cutbacks in consumer spending and the credit crunch are resulting in negative economic growth. He said consumers are cutting back on there spending because of the financial crisis. Consumer household spending represents about 70% of economic activity on in the U.S.
"Consumers have looked at their 401Ks and their house values and feel they need to adjust their portfolios and not spend as much," said Testa. He added consumers are worried about their incomes and about keeping their jobs which has led to the "retrenchment in spending."
Testa said the declining housing market is also having a negative impact on the economy. "It has taken off a point of our growth which is usually 2.5–3% per year," he said.
While the economy is slumping, there is a bright spot which will help the economy in the coming months: low oil prices. "Oil prices have declined to $65 a barrel on the spot market," he says. As a result gasoline prices have dropped.
"That's a stimulus. It will put $100 billion into our economy per quarter," because consumers won't have to spend as much to buy gas and can use the cash for other purchases," said Testa.
Many electronics distributors attending the conference said they were just starting to feel the impact of the financial crisis and the credit crunch. Some were forecasting slow to flat growth in 2009, but acknowledged that negative revenue growth was possible. Some say business would get worse before it gets better.
"There is a lot of uncertainty," says Mark Larson, president of Digi-Key in Thief River Falls, Minn. "There is a potential for a downturn, but I believe we will outperform the market." Digi-Key will likely end 2008 with a 7.5% increase in revenue, but next year sales could be flat. "My best guess is it will be pretty unspectacular," he says.
Roy Vallee, chairman and CEO of Avnet, says the current global economic slowdown in the industry won't be similar to the downturn of 2001. "None of us is sure how deep the downturn will be and how long it will last, but I don't think this will be anything like 2001," said Vallee, addressing the conference when he was awarded the Gail S. Carter Award for his contributions to the electronics distribution industry.
Vallee also noted that 2001 was an especially difficult time for Avnet and for the electronics distribution industry as a whole. "Avnet's revenue fell 40% in a span of nine months, component revenue fell by 60% in nine months," said Vallee. "It won't be like 2001 [in 2009] but I can't tell you how long or deep it will be," he said.
Valle added that "structural changes" have been made in the industry. "Those changes have resulted in inventories being much better managed. Capacity expansion is better managed, he said. "As a result we are much more Lean and more efficient."
In presenting the Gail S. Carter Award to Vallee, NEDA President Frank Flynn of Sager Electronics praised Vallee's contributions to the industry and for his support of NEDA's programs and encouraging senior Avnet executives to serve on NEDA boards.
"It's not often that an organization enjoys this type of high-level deployment of executive talent and expertise," said Robin B. Gray, NEDA s executive vice president. He said Vallee and Avnet have helped to improve the visibility, importance and growth of electronic distribution and raised the professional standard and ethics for the electronic distribution industry.
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