2023 DISC Forecast … Opt-In or Opt-Out of the Coming Recession

Manufacturers, distributors, and reps are all in the 2023 planning phase, all trying to read the tea leaves for a 2023 forecast. Concurrently some are experiencing a slowdown, some are sensing a slowdown and others are questioning if a slowdown will occur because their business is “still strong.”

The media continuously promotes a “coming recession.”

But what does it mean for the electrical industry given that:

• The industrial business reportedly is “strong” with companies expanding due to re-shoring and expansion needs.
• Supply chain improvement and backlogs getting filled, in some product categories.
• The passing of the 2021 Infrastructure Bill
• Major new construction announcements related to semiconductors / chips, EV chargers, EV vehicle production announcements, battery plants and
• Then there are some geographic areas where it seems “cranes out number people” (Austin, which is where NECA was, has 28 cranes!) and unfortunately the southwest Florida market will be strong as it rebuilds from Ian. Further, many areas in the Southeast are recruiting companies to relocate to the area which will stimulate demand.
• But, our recent Pulse of Lighting report may portend a direction … a decent summer with projections for slowing growth in Q4 and 50% of manufacturer and reps who talk to specifiers sharing that there is “concern” looking 6 months out.

It’s a confusing market as the Fed increases rates and, while “they” (politicians, economists, media) talk about “engineering a soft landing”, in reality the economy is not an airplane that has a glide path managed by hydraulics and engineering systems for a precise, guided, landing so “they” will overshoot and need to correct, hence a recession, probably mild and hopefully of a “short” duration.

But this is all about listening, reading, and applying some logic. It has nothing to do with economics and forecasting.  For that we turn to Christian Sokoll from DISC. DISC has been providing economic forecasts to the electrical industry for 35 years.

Chris shared observations from DISC’s Q3 Flash Report

DISC 3^rd quarter Outlook

“This has been an interesting year. Soaring prices and strong demand marked the first half of the year for many resulting in record growth. Commodity prices have settled some. Supply chain, while still challenged, is a bit more predictable. We are now starting to see the impact of Federal Reserve moves to contain inflation through aggressive interest rate hikes, curtailing business investments and slowing price increases. While employment has sustained steady strong gains, there is likely a weakening on the horizon. All indications point toward a recession. While we currently believe the longer-term impact to be mild, we need to aware of the signs and manage our businesses accordingly.

The 2022 Inflation Reduction Act will power our industry for many years to come, and preparations should be underway now. Electrification and the move away from carbon-based energy sources is the cornerstone of this legislation. We have begun to include these impacts into our longer-term forecasts. In the near term, and for your next year’s plan, the expectation is for our market to continue to decelerate into 2023.

For now, in this month’s report:

This month, the overall outlook and forecasts have been revised slightly downward (again). There are two factors in play going in opposite directions in this forecast: Prices have been revised up from 16.2% to 16.7% for 2022; however, negative economic influence is stronger than the price rise.

Looking at our largest vertical, the construction market, we see increasing weakness.

• Non-residential construction has been revised down from -5.0% to -6.3% in 2022 and from -0.6% to -2.1% in 2023.
• Residential construction has been revised down from -8.7% to -9.9% in 2022 and from -8.3% to -9.4% in 2023. It is important to plan appropriately.
• In the industrial market, equipment investment remains strong, up from 7.7% to 8.2% to finish 2022, but is pressing downward year over year due to cost of investments from -0.9% to -1.8% in 2023.

With interest rates potentially going higher we forecast continued market deceleration and recession.

If you ae working on your 2023 market plans, DISC DataSearch supply side data sets and all the quarterly MSA data bases will be updated in mid-October. In November we will update the MarketTrack demand side data base.

What Makes Up DISC?

We are frequently asked “Where does our data come from” The short answer is it starts with the US Government. We plug data into our proprietary models and consider macro investments in structures like commercial buildings, healthcare, industrial buildings, mining and exploration, and utilities. We also gather and use data on business investments in industrial equipment and communications equipment, among other things. We consider the PPI for industrial products and equipment and then look at employment and establishment counts. Looking through a monthly DISC Flash report gives you a strong sense of what we look at and consider in our forecasts. Reliably forecasting the future of the Electrical distribution community is what we do and have done since 1985.

DISC Corp is here to help you answer the following questions:

• How big is my market?
• What is my share of the market?
• Where am I missing share?
• Are my resources aligned to gain share?

If you would like the current DISC Flash Report to use in your market plans, you can purchase one here. Or use the link below to buy the current report or subscribe for a year with the ET Discount.

Takeaways

So, slowing growth and then decline is projected, from a national perspective.

Some things to consider:

• While residential has the largest projected decline, from an industry perspective it is the smallest part of the market.
• All markets are “local” so, as a distributor, it is feasible to “opt-out” of the projected recession based upon your geographic area, market segment, investment philosophy, and willingness to invest in demand generation initiatives.
• Key applications will enable distributors to pursue growth segments. The key is focus, training, targeting the “right” customers and identifying the “right” manufacturers for application marketing initiatives. Further, manufacturers, and hence reps and distributors, are focused on customer engagement opportunities. The industry remains a “people to people” business. Product research may be facilitated by online research, but customers frequently want the information verified or explained for their initiative. Negotiations happen between people, but transactions may be consummated electronically to reduce operational costs.

Bottom line … be cautiously optimistic. Maybe you will not grow 15-20%, but the industry, historically, grows 3-5%. Continuing the pace of the past two years is not healthy for many businesses because companies in the electrical industry are not structured for rapid growth. It strains supply chains, staffing, systems, training, and financial systems.

2023 will represent an opportunity to take share. Whether you participate in the recession or carve your own path is your choice.

Ask us how we can help you and provide ideas that will generate results.