Projecting Better Days Are Ahead … but 13%?

Economic forecasting is almost like meteorology.  People get paid for looking at data and projecting information into the future.  As a distributor or manufacturer, these projections can help you forecast a baseline for your business.  And, like in meteorology, the accuracy of the forecast is why you follow one person rather than another.

And like Tom Naber said in this month’s TED magazine, “distributors need a resource dedicated to economics” and they “need to stay informed of changing economic conditions.  For this reason NAED developed a relationship with Alan Beaulieu of ITR Research.  Dr. Beaulieu also spoke at the NAED National and attracted about 125-150 people to his session (for an NAED session this was impressive.)

Capturing macro-economic information to support goal setting is helpful to manufacturers as they sell nationally and, in the words of Michael Marks, “this is a GDP industry.”  For most distributors, understanding local performance drivers is more critical.

Take the second half of last year and this year….patchwork economy.  Contractor driven. Impact of oil and the ripples that the oil industry has created. The strength of the dollar and its impact on OEM sales.  Macro issues that drive micro economies.

And a key from a economic user viewpoint is the back-tested validity of the forecasting.

But, to Alan’s NAED presentation.  Here are some of the observations, and audience comments.  Click here for all of his slides / his presentation as he used many charts to highlight macro-economic data (which, aside from the rates of change that he uses, are readily accessible … Wall Street Journal, Financial Times, perhaps your broker, and other economic newsletters)

• 2016 will get better for second half of year.  Expecting 3% growth for electrical
• 2017 to be strong … 13% was mentioned (afterwards no one thought this was realistic.  Perhaps 50% of this number.  The one thing that was said is that people agreed with the general direction.)
• 2018 good
• 2019 mild recession led by consumer market, regardless of whom becomes President
• Growth thereafter due to millennials and consumers
• He believes oil will increase and either Russia or Saudi Arabia will have some influence over Iran’s oil production (hopefully he said this facetiously as the audience doubted this!)
• China will resolve itself and get back to growth, which will increase commodities.  He foresees more infrastructure investment. (again, the audience was “surprised” given China’s vacant cities)
• Lighting market will be good for the next two years based upon current indicators and their rate of change.
• Oil / gas – the decline has stopped due to there being rig count stability
• Second half of 2017 will see oil rise and therefore rig count and pricing rise and that the price of oil is and economic driver (double edge sword given those who like to drive!)
• Defense industry, especially aircraft, will be strong.
• It costs only 5% more to manufacture in Mexico than to manufacture in China, which is why more companies are considering Mexico.  China’s costs have increased due to worker environment improvements, wage improvement and a developing middle class.
• Sees a consumer driven economy powering growth. (this presumably means consumer = population and that areas with population density will benefit from the most from this economic environment … metropolitan areas … which is what we’ve seen for the past year and is also amplified by socio-demographic trends to migrate to cities (millennials, elders, for transportation and energy issues, etc).  This could benefit national chains as well as companies that resource city-branches.)
• And then major economic problems for 2030 but … if we’re still writing ElectricalTrends in 2029 we’ll worry about it!

Many felt the session was entertaining. A couple of manufacturers and service providers who have attended other industry meeting / national chain meetings this year and have seen Dr Beaulieu commented that the presentation was the same (and the commentary) with only a couple of slides changed (this infers nothing has changed for forecasting the next 6-30 months).

So, it was entertaining and if NAED thinks its members need macro-economic data to better understand their business …

But let’s get back to the electrical industry…

Herm Isenstein from DISC issued his monthly FLASH report last week.  Some highlights authorized by Herm (and there is much more in the report):

• Year to date economic models are showing negative.  May is at -1.6% and DISC is projecting -1.5% for the overall industry, nationally, for 2016
• Overall contractor market (industrial and construction) is fractionally down but the building construction market is up 10% and resi is up 9% (which says something about the industrial contractor market!)
• Current, early, projections for 2017 are indicating 7% but, based upon experience, DISC believes this will ratchet down to around 5%.  The market will be led by the contractor segment (potentially construction and if oil prices increases, possibly industrial contractors.)
• Price erosion is having a significant impact on the business this year but the business is projected to benefit from price increases next year.

There is more information in the report that can help distributors consider electrical market decision drivers to impact their planning.  Additionally, DISC’s Market Track database provides guidance by SIC and by state and county.

If you’re looking for economic guidance specific to the industry and you are not subscribing to DISC and not integrating it into your sales and marketing planning and goal setting, you should consider calling DISC.  We’re not advertising for him, we’ve utilized DISC information to support customer initiatives and DISC’s forecasting has been back-tested.

Yes, better days are ahead.  And they key to any economic forecast is remembering that it is only a forecast.  You can generate your own results by understanding the marketplace, effective planning and then executing your plan.  Following the herd is not necessarily a recipe for success.

If you sat in on Alan’s session, what were your thoughts? Are you using economic data in your planning process? If so, and not these two tools, what do you use?