Insights from the July DISC Report

July 2022 Flash Report Overview

Each month, Chris Sokoll from DISC shares insights from his monthly DISC report, which is provided to executive leaders in the electrical distribution industry.

Strong 7 Months with Slowing Growth to Come and Then …

“We are in unusual economic times. There are indicators of a brewing recession with declining total GDP output, a common marker of recession. However, other indicators are moving in a positive direction. Industrial production, employment, hours worked, and personal income all realized growth so far this year. With high inflation and unstainable employment gains, the FED is raising interest rates to quell inflation and slow growth. With more interest rate hikes on the horizon and unemployment rates forecast to rise, we may move into a recession in the near future. But, we are not quite there yet.

Here at DISC, we maintain our expectation of slowing yet positive sales and revenue growth in our industry for the balance of the year.

The infrastructure act is holding up a large portion of the opportunity in our market. So far the Year over Year Q2 results  from Graybar (+19.7%), Wesco (+19%), A/D (+22% on same store growth), Rockwell (+15%) and nVent (+21%) looks to be in line with our forecasts. For the 2^nd quarter we forecast the electrical distribution market total growth at +15% YoY, with the vertical growth as follows:

• Industrial at +26.4%
• Construction +11.1%
• Institutional +8.4%, and
• Utility at +12.1%.

This strong performance follows last year’s industry growth rate of about 24%. It’s no wonder that these companies are having stellar and record-breaking results. However, we hold our previously forecast growth slowdown in the second half of 2022 following the strong results in 2021.

The next two years, 2023 and 2024 will experience negative sales growth on a year over year (YoY) basis. Why?

• Construction overall will be weak, except for the mining, exploration, and healthcare subsectors.
• The industrial manufacturing vertical and the office MRO (Institutional) markets will remain in slowing but positive territory as pandemic recovery continues.
• Infrastructure investment will create opportunity for anyone who wants to capitalize on it.

DISC’s Projections Looking Forward

Looking into our copper assessment in our July report you will find some often overlooked opportunities in the electrification arena. Considering ongoing geopolitical events, we also foresee defense spending continuing to accelerate.

Business fixed investment came out of the gate in 2022 with high expectations. We forecast that to slow as financial conditions become less favorable. Borrowing costs are rising along with market uncertainty. Residential slowdown is accelerating. The first quarter saw robust investment on equipment, mining, and petroleum processing, specifically industrial and communications equipment. Fuel prices will decline a bit further as the petroleum released from the strategic reserves by the Biden administration work through the markets. We will continue to feel price pressure on delivered goods prices on all fronts, import and domestic.

We have experienced meaningful elevation of future risk in the first half of 2022. At DISC we feel confident about the prospects of a slowing growth cycle. We see continuing deceleration through 2024.

Our expectation remains for continued opportunity for the balance of 2022. Careful and thoughtful market planning and strategy will ease us through any downturn. By keeping an eye on opportunity and maintaining strength in the balance sheets, you will enjoy continuing success.

There remains opportunity in our market; where to look and how long the trends will last can be found in our data bases. If you are not already using our data base tools, reach out for a demonstration and gain additional market knowledge.

Click on this link to purchase a copy of the full July, or you can get an annual subscription at a special ElectricalTrends price.

Have questions about the outlook or the report, reach out to Chris Or connect with him on LinkedIn.

Takeaways

So, DISC sees slowing growth and a challenging 2023, maybe 2024, but with market segments that could represent opportunity.

From our conversations with clients and the market:

• Some are seeing a slowdown, especially in stock business, as they track line-item activity.
• Others see no change.
• For some, they don’t expect to realize a slowing market because they see market share growth opportunities.
• Some geographic markets may not have any decline … and may accelerate. Local market dynamics are more prevalent than ever. As manufacturers look towards 2023 planning, “peanut buttering” your sales forecast should be “unacceptable” to management. It’s not informative and its unrealistic. Companies can benefit by digging into markets (geographically as well as by segment) to identify opportunities.
  • DISC’s Market Track database can help with this. Distributors should also consider better understanding the Trimble Supplier Xchange platform as a share-taking tool (and don’t forget their webinar on Tuesday, August 16th or reach out to them (and if you don’t know “who”, email me and I can forward the info / send you a name.)