The Consumer Market for Cable Assemblies:
Tough Times for Consumers
By David Pheteplace, Bishop & Associates Inc.

Why is this market facing such tough times? Let’s review some of the contributing factors.

Consumer confidence, a relative measure of consumers’ optimism about the economy and personal finances, slipped to a 10-year low in early 2009 in the U.S. It currently sits at 45.4, up slightly from August, but well below the prior 10-year average. The euro zone has seen a similar tracking in consumer confidence. When consumer confidence is low, consumer spending is low. The following charts are from Trading Economics.

Looking at the impact of these consumer confidence numbers on the world economy, the U.S. represents 4.5% of the world population and the euro zone represents 4.8%, a combined 9.3%. The U.S. economy equals 23.5% of the world economy and the euro zone represent 20.1%, a combined 43.6% of the world economy. Per capita, these two areas have the largest impact on the world’s economy.

What is contributing to this low confidence number? A number of things.

Unemployment in Europe and North America has stubbornly remained at high levels. The euro zone is currently running at 10%, and the U.S. is just above 9%. Both areas have been stuck at these levels since mid-2009, as seen in the following graphs from Trading Economics. Most concerning, there does not appear to be anything on the horizon that will move these economies into a robust recovery and a resulting decline in unemployment. If you are unemployed, you are far less likely to purchase consumer goods.

Another trend feeding the low consumer confidence level is stock market performance. Both in the U.S. and the euro zone, the stock markets have undergone wild swings and a significant loss of value after some recovery from the initial recession. As can be seen in the following charts from Trading Economics, the United States Dow Jones Industrial Average is down almost 10% from its 2011 highs and the euro zone STOXX 50 has declined 22% from early 2011. For U.S. retirees, the loss in 401k value and other retirement investments has been significant.

Contributing to the low consumer and investor confidence is the sovereign debt crisis in Europe and the budget crisis in the U.S. The U.S. debt-to-GDP ratio stands at 93.2%, or nearly $14 trillion. This increase is due, in significant part, to the wars in Iraq and Afghanistan over the last 10 years and the recent economic stimulus programs. The debt-to-GDP ratio in the euro zone stands at 85%, or $10.6 trillion, and is due in large part to social spending. The debt ratio is particularly bad in Greece (142.8%), Italy (119%), Ireland (96.2%), and Portugal (93%). This high debt-to-GDP ratio, coupled with the lack of political cooperation in Washington, haggling between the European governments over bailout programs, and rioting in Greece, has led the investment community to shy away from the stock markets.

Although there are many other factors impacting this market, the preceding three paint the picture for slow growth for the consumer market.

Bishop Comments:

• We do not see any short-term trends or factors that will shorten this recovery period. We believe the recovery will be slow, taking two or more years. It is possible that certain political or economic factors could throw the world economy into a second recession.

• The slowing GDP growth in Europe and the U.S. forecast for 2012 will negatively impact the world economy.

• The slowing GDP growth in China and India, coupled with high inflation and tighter credit, will negatively impact these economies and their consumer spending.

The world economy is still very fragile. Bishop & Associates expects the worldwide market for consumer cable assemblies to grow only 4.1% in 2011, to a worldwide value of $6.2 billion. The highest growth rate is expected in China, at 11.6%. The growth in 2012 is expected to be even lower.