A Different Kind Of Bottleneck

Economic rate setting impacts the demand for advanced electronics in unpredictable ways.

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Electronics have always lived in troubling times. There have been threats of outsourcing, not to mention re-outsourcing from the outsourcers, constant pressure from startups from around the globe, pricing pressures, government intervention, technological issues, and rising complexity that is now forcing a complete re-thinking of the supply chain. More recently, the demand has been for mobility, meaning a fully functional PC that fits into your pocket and can access the Internet instantly, including streaming video, and which runs on a battery that lasts a full day.

What’s not entirely clear is how that connects to the overall economic slowdown and why. The reasons are diffuse, obtuse and frequently contradictory. But slicing through the political and economic rhetoric and looking at the broader trends, much of it appears to point back to interest rates. That probably seems as far afield from electronics as anyone can imagine, but there is a link—particularly when you think of the job market as a flow diagram. Young graduates enter the job market, increase their earnings through years of hard work, and ultimately retire. During their peak productivity years they raise families and provide enough earning power to fuel a revolution in electronic gadgets.

The problem is that with interest rates low, the retirement rate is slowing. A retirement account with $1 million used to generate $50,000 a year in interest, and sometimes as much as $70,000. It now generates about $5,000 to $10,000. That means people are staying in their jobs as long as they can to amass more wealth. But this is no ordinary bottleneck. It’s the baby boomer generation, and they’ve clogged the system as never before.

While low interest rates are essential for jump-starting economies around the globe—cheap capital has always been a boon to growth—those same low interest rates are creating a bottleneck on the other side. Globally, the unemployment rate among youths is 12.7%, and it’s expected to rise to 12.9% by 2017, according to the United Nations’ labor office.  In the Middle East and North Africa, the rate is above 25%. In Spain, the jobless rate for those aged 16 to 24 is 53%. In the United States, the number of 16- to 24-year-old workers was 17.1%, according to the Bureau of Labor Statistics.

These are the people who typically buy mobile electronics. They’re the ones demanding the latest gadgets, the newest games, the fastest communications and the longest battery life. They spend less time making voice calls and more time texting, downloading, creating demand for new concepts and even more devices. But if they don’t have money to spend—or far less, at the very least—demand is going to take a big hit. The ones with the money aren’t the ones who will be spending it on the latest portable devices, which ultimately will impact selling prices, creativity, and the budgets to solve some of the thorniest electronics issues in history. Increasingly, the ones with the money can’t even read the screens without reading glasses.

Some published reports lately mention the possibility of losing an entire generation of workers. At the very least, it raises questions about how much should be spent on college and other training if it doesn’t yield a job. And that starts a whole different kind of spiral that could take far longer to reverse. These are definitely challenging times, but those challenges may grow even larger if interest rates don’t rebound soon—something that should be of particular interest to every facet of the electronics industry.