Accelerating Decline & Electrical Market Sentiment Survey #2

What a difference a week makes!  You may recall that late last month, based upon economic data through March 20^th, DISC forecasted that the electrical industry would be down over 12% at the end of the year due to COVID-19. We felt that that forecast was, unfortunately, optimistic. Our first Electrical Market Sentiment Report hinted it could be worse. Now we’re launching our second survey focused on the beginning of April to get your insights.

With data now through March 30^th, DISC is forecasting -19.6%, an accelerated decline of over 50% based upon only one additional week’s worth of data!

Imagine what will occur as additional data is received?

Consider:

• There are now 42 states that have shelter-in-place restrictions, up from 27.
• More areas have mandated construction activities cease. While this may not impact your market, it is impacting major construction centers (Boston, New York, Philadelphia, New Jersey, parts of California, etc)
• With many businesses closed, construction projects (especially renovation work), may be on hold.
• Due to the global impact of COVID, OEM business is off

Not all the news is bad

There are:

• Many markets, based upon distributors we’ve spoken with, where business continues, projects are being quoted, industrial activity is strong (especially healthcare and CPG businesses) and it is almost “business as usual.”
• And there is still residential remodeling going on as a friend recently commented that they are starting a significant renovation on their home.  They are taking precautions, know the contractor, and have inquired about the contractor’s COVID protocols.

The market, as consultants like to say, is “challenged”. To learn more and share more, we’re:

• Launching our second COVID-19 Electrical Market Sentiment survey. This survey, a follow-up to the one we did the end of March, asks about sales activity the first two weeks of April, and recent business actions and starts to look forward. The first survey had over 400 responses and we shared the report, for free, with respondents. Share your input by Friday, April 17th and we’ll provide you with the results next week.
• On April 22^nd at 2:00pm EDT, ElectricalTrends readers, DISC and Channel Marketing Group clients and survey respondents are invited to join an economic webinar focused on the COVID -19 economic impact to the electrical distribution community. Hosted by DISC Corp, IHS Markit and Channel Marketing Group.  To register need to either take the survey or email Channel Marketing Group or DISC to receive the webinar link.
  • Our presenter, IHS Markit, will discuss:
    • COVID-19 implications on the electrical distribution industry
    • Latest top line macroeconomic view for the US and business in general
    • Regional highlights and areas of deep concern
    • DISC sector and regional outlooks (contractor, industrial, institutional and utility markets)

Updated Electrical Distribution Market Outlook … Return to 2019 in 2023!

Christian Sokoll, president of DISC, shares:

Truly a black swan event of epic proportion is upon the entire world. The need for mandated social distancing measures has halted a large portion of the global economy. This is compounded by a contraction in oil prices deepened by a lack of demand. Massive layoffs and sharp contractions in financial markets are undermining personal wealth. Unprecedented drops in demand for goods and services may instigate the largest drop in domestic GDP ever. These events carry longer-lasting implications for recovery. That said, the electrical community is deemed, as it should be, an essential business. We have weathered downturns before and will again. The chart below shows the downturn and recovery cycles of 2002 and 2009 as well as the current DISC forecast for this 2020 cycle. The bars represent dollars of sales and the line is year over year (YoY) percentage of increase/decrease. 

DISC Corp Baseline Forecasts for Electrical Distribution as of April 10, 2020

• The current forecast is to return to pre-pandemic levels by 2023 (equivalent sales dollars to 2019). The current but changing expectation for the overall Electrical Distribution market is to finish 2020 down -19.6% below 2019 YoY results.\

As stated in our last update, we expected further downward revisions as we continued to gather data, our last forecast as of late March was -12.4% YoY. As of now, the expectation for beginning the recovery cycle is in 2021 with a YoY increase of 3.9%. We are forecasting stronger acceleration in YoY growth of 11.4% in 2022. The 2023 forecast of 5.4% growth puts us in reach of 2019 sales.

• The revised Contractor sector forecast is down -24.8% YoY for 2020 with the bulk of the downturn falling in 2020 Q3 and Q4, as construction markets tend to lag other markets. However, stay at home, social distancing and construction stoppages will heavily impact Q2 results, followed by steeper declines later this year and into the start of 2021. The forecast for 2021 is down overall -1%, followed by 2022 growth of 19.1%.
  • The revised Industrial sector forecast is for 2020 to be down -20.7%. Supply chain disruptions, factory closures and a drop in demand for goods and services due to illness and social distancing measures will continue to drag recovery through the year. We forecast a return to 5.7% growth in 2021 as government intervention with rate cuts and other aggressive fiscal policy measures start to positively impact the sector.  In 2022, growth will climb to 6.3%.
  • The revised Institutional sector forecast is down -10.9% for 2020 with a return to growth of 6.9% in 2021 and 5.5% in 2022. A unique opportunity for construction in educational and other normally highly populated facilities currently exists, as closures allow for less restricted access to complete improvements and upgrades.
  • The revised Utility sector forecast is down -9% in 2020, up 1.5% in 2021, followed by a 5.4% increase in 2022.

Current Quarterly Forecasts for 2020

The COVIC-19 pandemic will continue to negatively and unpredictably pressure results through the balance of the year. Expect these forecasts to be revised in the weeks ahead. We currently anticipate a measured and slow market rebound beginning in 2021 with a return to positive results midyear 2021 and recovery to pre-pandemic market levels in 2023. 

The DISC Monthly Flash report is a more in-depth look at the current detailed information by sector, economic indicators, and the drivers of economic activity focused on the electrical distribution community. Please visit DISC’s website to learn more, or call (346) 339-7528 to find out how to obtain your copy. DISC’s Monthly Flash Report is $895. Mention ElectricalTrends or Channel Marketing Group and receive a $100 discount.

What’s Next and What to Do

So, -19.6 is what you would expect at the end of the year, if nothing changed, and you were diversified.  If you’re solely contractor-oriented, nationally, it you would be down almost 25%.

As a distributor it’s good to remember that every market is local and that growth can come through market share and account penetration as well as mining your account base (remember, all of those unassigned accounts that have a credit line with you?)

Manufacturers are more challenged as they play in a national market. Key will be distributor alignment and targeting end-user markets.

Some questions

• What are you experiencing in your market?
• What are your projections for the month? Q2?
• What are your customers seeing for their business?

Want more insights? Remember to take our COVID-19 Electrical Market Sentiment survey by Friday, April 17th and request an invitation to attend the April 22^nd electrical distribution industry economic forecast.