PURCHASING HOTLINE

By Staff -- Purchasing, 2/22/2001

• Real GDP grew at an annualized rate of 1.4% in fourth quarter 2000, pushing the annual economic growth figure to 5%, which compares quite favorably to the 3.6% consensus growth forecast floated originally back in January 2000. But stronger-than-expected growth in 2000 is old news. All economic eyes are now focused on first-half 2001 and the rising possibility that the economy has slipped into a holding pattern if not outright recession. Consumer spending grew at a respectable 2.9% annualized rate in fourth quarter 2000, but spending for big-ticket items fell at a 3.4% rate (the second negative quarter out of the last three). Businesses also cut spending, logging a 4.7% annualized contraction in outlays for equipment and software. Outlook: The Fed's swift and decisively sized interest rate cuts will certainly swing things around, but economists are saying the time-lag factor makes first-half 2001 a lost cause, especially for the manufacturing sector.

• The Consumer Confidence Index fell 12.2 points in January for a total decline of 28.1 points since October. That's the steepest drop in the index since January 1991-when the economy was already in recession. Indeed, First Union VP and Economist Mark Vitner notes, "We have never had a decline of this magnitude in consumer confidence over the past thirty years when the economy was not already in recession."

• NAPM 's Purchasing Managers' Index (PMI) fell to just 42.7 in January, a level the association classifies as "below the breakeven point for the overall economy." NAPM says this is the first time the PMI has fallen to such a level in 117 months. Noteworthy is that the association's index tracking prices paid by purchasing managers remains in the positive zone, reflecting continued cost gains for certain manufacturing inputs (linked mostly to higher energy prices). This coincides with anecdotal evidence in the Fed's latest Beige Book which finds frequent evidence that corporations-especially those in manufacturing-are suffering a big profits squeeze at present.

• A member survey conducted last month by the National Association of Business Economists (NABE) finds 59% of industry economists classifying their forecasts for 2001 as "somewhat more pessimistic" and 10% calling themselves "significantly more pessimistic" than they were in October. Four months back, the corresponding percentages were just 32% and 1%.

• The Bush administration is expected to speed deregulation of the telecommunications industry, as the Republican leadership assumes a more hands-off approach to business. A research report by Dataquest says some of the expansion of the telecom industry had been held back by the Clinton administration's micro-management and reluctance to encourage free-market dynamics.

• Inter-Tel Technologies is buying selected assets of Convergent Communications Services' voice key systems and PBX integration businesses. Inter-Tel provides digital business telephone systems and related equipment and services.

• Young adults aged 10-24 may be the fastest-growing market for wireless voice and data services in the U.S. over the next several years, according to Cahners In-Stat Group (www.instat.com). The high-tech market research firm forecasts the number of youth wireless subscribers will reach 43 million in 2004, up dramatically from 11 million last year. By 2004, half of U.S. youths will own a wireless phone and nearly three out of four will use one. "This age group, usually lacking a credit history, represents a credit risk for carriers," says Becky Diercks, director of In-Stat's Wireless Service.

• Worldwide mobile phone unit sales are expected to reach 550 million units this year, according to leading wireless phone makers, up from around 400 million this year. Market leader Nokia, for example, estimates that 70%-80% of phone sales will be replacement purchases. That's why market analysts think Nokia may cut phone prices to spur sales, pressuring competitors to do the same. The mavens also think Internet-enabled phones will see a gradual rise in popularity through the availability of sophisticated new models, lower prices and more services.

• The digital subscriber line (DSL) integrated circuit market will grow to more than 90 million by 2004 from just over 10 million ports shipped in 1999, according to Cahners In-Stat Group, a high-tech market research firm. "The DSL IC market expanded rapidly in 2000, as providers begin a massive build-out of much-needed digital subscriber line infrastructure," says analyst Katherine Bowen. "Chipset integration and increasing densities are reducing costs, allowing prices for ASPs (active server pages) to fall and reach mass-market levels. The main barrier now lies in reducing the cost and time of deploying digital subscriber lines."

• Intel's rollout of its new Pentium 4 processor will be the company's most difficult product transition since it converted from the Pentium/MMX to Pentium II in 1997, according to Cahners In-Stat Group. The high-tech market research firm says the 1.5-GHz Pentium 4 chip requires new motherboards and chip sets-representing a formidable challenge for Intel and the personal computer industry. In addition, each Pentium 4 wafer will produce only a quarter as many good chips as the Pentium III wafer, forcing the firm to increase manufacturing capacity. However, In-Stat says Intel may not be able to produce enough wafers to meet demand, potentially slowing its Pentium 4 ramp up.