2017 Planning – Macro Outlook, Wood Building Construction & Oil

It’s now about 30 days to the AD and IMARK national meetings.  Graybar just held their national meeting.  Manufacturers and distributors should be well underway in their individual planning.  2017 joint business planning is quickly upon us and, in continuing with our planning series, below is some information, and thoughts, that may help you.  In this edition we’re covering the macro outlook (courtesy of the Federal Reserve), the oil markets and the “building” segment.

Macro 2017

The Federal Reserve held the current Federal Funds Rate but also: (from Yahoo Finance)

• “cut their median growth projection for 2016 to 1.8 percent from 2 percent, mirroring the drop in the longer-run forecast, based on median estimates.
• Inflation is projected at 1.3 percent in the fourth quarter, down from a forecast of 1.4 percent in June. Policy makers again projected that inflation will reach the 2 percent target in 2018.”
• Officials scaled back expectations for hikes in 2017 and over the longer run.
  • The Fed expects growth will remain tepid for the next three years, the latest evidence it is pessimistic about the economy’s potential to expand more quickly.
  • The Fed issued its quarterly economic forecasts and for the first time included projections for 2019.
    • Fed policymakers expect growth will be just 1.8 percent that year (2019), after
    • mediocre growth of 2 percent in 2017 and 2018.
    • The economy is likely to expand at a rate below 2 percent this year (2016)
  • Fed policymakers also forecast that inflation will nearly reach its 2 percent target next year and remain 2 percent in 2018 and 2019. Yet inflation has remained below that level for more than three years.

• Strategic marketing coupled with marketing execution
• Sales management to drive accountability
• Price optimization strategies

• If you sell products that go into wooden structures, then odds are an LBM distributor sold material for its construction.  This could be an early indicator of challenges in the residential market (new construction and renovation); perhaps “small” multi-family construction. The index could be more applicable to some areas more so than others due to local construction trends.  It’s worth reading more of the article and perhaps contacting BlueTarp to see if they regionalize any of their findings.
• And, perhaps this adds some color as to why the Fed reduced its outlook for 2017 and 2018 (not because of BlueTarp’s findings but economic emerging / unseen issues?)

Oil Markets

Everyone knows the impact that the oil / gas market has had on the electrical industry, and especially the industrial segment, over the past 18 months.  The obvious places (Gulf coast, North Dakota, , Marcellus & Utica shales) have had significant drops in business and there have been cascading effects to many other parts of the country as companies throughout the country served companies in the oil / gas markets.

When exploration budgets were slashed, hope was gone. Companies were not going to restart projects and ask for new budgets in mid-year.

But now a new year is coming. Most feel that there will not be another steep drop in the price of oil and that companies at least can now plan for 2017 and beyond.  MRO work that needs to be done will be budgeted and rigs will be put back to work. While not at the previous rate, but more so than 2016

Some indicators:

• A distributor in the Houston area reports that a oil equipment rental company’s facility which was full a few months ago now appears to have 20% less equipment … they are renting it!
• We’re hearing of some petroleum companies that have restarted some drilling.  Not much, but some.
• Here’s an article with early projections of 100,000 new jobs in the sector by 2018:
  • As more oil fields come on line and America’s oil boom gets back on track, there simply won’t be enough people to do the required drilling, well completion and other logistical work. Cheap oil wiped out nearly 170,000 oil and gas jobs since late 2014 as desperate companies scrambled to cut costs and avoid bankruptcy.

    That means just to keep up with the expected ramp-up in drilling activity, the oil and gas industry would need to add 80,000 to 100,000 jobs between now and the end of 2018, Goldman predicted in a recent report.

    The estimate is based on Goldman’s forecast for U.S. oil production to resume growing next year after the recent drop to two-year lows. That growth would require some 700 oil rigs to be added — and each one supports an average of 120 to 150 employees

• Here’s an August article regarding an increase in oil rigs “U.S. oil explorers have boosted the number of active rigs by 58 since the start of June to 374, with three added last week, Baker Hughes Inc. said July 29. American producers have expanded drilling in recent weeks after idling more than 1,000 oil rigs since the start of last year.”  It is currently at 506.
• Some distributors are reporting design / early estimating requests in some gas areas.  No orders yet.

Conclusion – if you have customers in the oil industry or who sell to the oil industry, there should be some improvement in 2017 but not necessarily robust.

Our goal is to share a range of information to help in your planning initiatives.  There are opportunities in every market. In the coming weeks we’ll share other ideas and information … and feel free to reach out with questions, ideas or insights.

And if your a manufacturer with market segment insight and would like to share regarding segments or applications, reach out to me and you can share information as a guest columnist.