Patchwork Economy Resulting in Layoffs & Branch Closings

Over the past few weeks Allen and I have spoken to a number of distributors and manufacturers and are receiving a range of input.  During our discussions we gain a sense of what is occurring within markets.  All of our conversations with distributors, be they clients, friends or acquaintances, are confidential and any information posted on ElectricalTrends would have already been published in the public domain.

But what we’re hearing conflicts with the information that is communicated via mass media pundits (TV, Wall Street Journal, economists, etc).

The public media talks about an economy that is “improving”, especially from a consumer viewpoint.  While it may be slow GDP growth, it’s growth.

We’re hearing of what we call a patchwork economy.  By patchwork we’re saying it is like a home-made quilt.  There are pockets of strength and then pockets of weakness. There are companies that are growing and then others that are experiencing double digit declines.  There are companies that are hiring and then those that are undergoing layoffs as well as branch closings. We’re seeing major metropolitan areas having growth and then suburban and rural declines.  We’re seeing Rockwell distributors that are up … and others that are in significant decline.

Some trends:

• Oil & gas … major declines in core geographic areas but distributors need to be cautious of customers who serve these markets (and you may be far away, geographically, from these markets.)  And reading future outlooks for the oil market … extended low pricing, perhaps going lower (see this article in Saturday’s Wall Street Journal) and when / if Iran starts to pump oil it wouldn’t be surprising to see them stoke a price war to take share from Saudi Arabia, hence increasing supply and reducing pricing … net result is potentially more layoffs and a reduction in oil / gas investments.  Knowing your customers’ customers is more important than ever.
• OEMs … can be very much down or up.  It depends upon what they sell and where they sell it.  The ag market (and ag equipment) is down. Products going to Europe and Asia are more likely to be off.
• Copper … need we say more on how this is impacting sales and GP dollars … even if you are selling the same quantity.
• Mining …. as natural gas continues to be inexpensive, less utilities use coal. This is also fueled by usage of renewables as well as energy efficiency initiatives.
• Industrial market … we’re hearing of accelerating declines since June.  Perhaps industry is somewhat uncomfortable with the future?

And now we’re hearing of some manufacturers reducing their work force (we mentioned some of these companies in our July postings based upon their quarterly reports – Eaton / Hubbell / Rockwell, Acuity & ABB), some distributor work force reductions and some distributors reportedly closing branches.

So, it bodes some questions regarding the layoffs (and some of the manufacturer layoffs number in the multiple hundreds)

• Is their outlook that the economy will become worse?
• Are they having a short term focus due to quarterly earning pressures, some of which is driven by foreign currency issues?
• Were they over staffed?
• Are they using the economic environment as a reason to reduce under-performing staff?
• Have they become so efficient in some areas that they could afford to make cuts (back office type of stuff)?
• Are the companies inefficient and hence need change?
• Have the one’s laying off people lost share to someone else?
• What are these companies thinking regarding growth opportunities for 2016?  In an article in today’s WSJ regarding the mining industry, shareholders / investors are now getting concerned that companies have cut so much that they may miss growth opportunities.  We’re not saying this relates to the US mining industry (it may) but the general consensus of companies that cut deep is “sometimes (sic) shareholders see a defensive stance as costly in terms of missed opportunities.”

We don’t know and would like your thoughts.

And companies that are growing? They are:

• Focused on the contractor market
• Are driving LED sales
• Are in major markets
• Have specific share-taking strategies

If you’re hearing of staffing changes in your market, let us know (email us or post … even anonymously – but please mention your city or state).

What are your thoughts regarding your local economy and the outlook for the remainder of 2015?