Potential U.S. Recession's Impact on IC Market Forecast
It's no time to panic. IC Insights says hold out for full 1Q08 results before re-evaluating forecast.

According to the majority of economists in the latest Wall Street Journal economic-forecasting survey, the U.S. has slid into the beginning of a recession. This view was reinforced by new data showing a sharp drop in February retail sales and a report of more U.S. job losses in the month.

The survey, conducted March 7 through 11, marked a precipitous shift to the negative from the previous survey conducted five weeks earlier.

So, is the sky falling? Is it time to downgrade IC market forecasts for 2008? Although no government data has been released to indicate that the U.S. economy has had even one quarter of negative GDP growth, IC Insights acknowledges that the U.S. is teetering near that point. However, we also believe it is premature to make adjustments—however slight or great—to our full-year IC market forecast, based on spot-news headlines and a survey of U.S. economists. IC Insights' March Update to The McClean Report examines the myriad pros and cons currently affecting the U.S. and worldwide economies.

According to IC Insights' experience, IC market growth in the first quarter of each year tells a lot about what to expect in terms of overall market growth for the year. Currently, IC Insights is forecasting 9% IC market growth for all of 2008. The forecast is based on the IC market declining 4% in 1Q08/4Q07, declining another 2% in 2Q08/1Q08, increasing 15% in 3Q08/2Q08, and growing 3% in 4Q08/3Q08. With these quarterly growth rates, the full-year 2008 IC market would achieve 9% growth (Figure 1).

If a recession has indeed hit the U.S., and other global regions also see their economies slowing throughout 2008, then the IC market may actually decline. In this scenario, IC Insights believes the market could drop 9% in 1Q08/4Q07, followed by a 4% decline in 2Q08/1Q08, then 10% growth in 3Q08/2Q08, and then ending the year with a 3% decline in 4Q08/3Q08. The result would be total IC market decline of 3% for the year.

The 2008 edition of IC Insights' McClean Report shows that there have been five years since 1975 when the IC industry posted a negative growth rate (1975, 1985, 1996, 1998, and 2001). In those years, the 1Q/4Q IC market displayed at least a 9% decline (1975, -13%; 1985, -18%; 1996, -9%; 1998, -10%; and 2001, -20%). If the sequential decline in the 1Q08/4Q07 IC market is 9% or worse, IC Insights believes that the 2008 IC market would be on pace to register a negative year. While the potential for a negative growth year exists, IC Insights is not ready to change its forecast just yet. Rather, we believe it is more prudent to stay with our current outlook of 9% growth at least until complete 1Q08 results become available—typically in the last week of April—before making any adjustments. All too often, IC forecast revisions made in the late winter must be revised back up in the summer.

Figure 1

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