1200 Up … and Electrical Recession Ahead (so says DISC)

On a day that the Dow Jones Industrial Average increased over 1200 points on the news that the CPI declined to 7.7% over the past 12 months, the 30-year mortgage fell below 7% and the 10 year treasury fell to below 4%, Christian Sokoll at DISC Corp released his October Flash Report with an outlook to 2025.

And there is good news and bad news.

• The good news is that 2022 ends with double digit industry growth.
• The bad news is there is DISC is forecasting a 6 quarter recession and the rate of decline is greater than DISC’s last forecast.

The recession call is not too much of a surprise given that many economists are forecasting the US will fall into a recession.

The part that many will have difficulty accepting is that with the Infrastructure Bill, the Inflation Reduction Act, industrial re-shoring / near shoring and a number of major construction projects in the automotive and semiconductor industries either ongoing or announced, plus distributor backlogs, how could there be a recession in our future?

Part of the answer lays in the fact that forecasting is based upon forward predicators. In other words, there is no way to project current backlogs and may of the projects are already announced and planned.

And while DISC has a factor for pricing, the reality is “who knows”.

The good things for NAED Eastern attendees is that Christian will be at the NAED Eastern so manufacturers and distributors can connect with him to ask questions.

For all others, give him a call.

Here’s Christian’s current forecast:

October DISC Flash Report

We are winding down another year. We have political uncertainty again underpinning our forward forecast. The electrical economy will see a quarterly Year over Year (YoY) recessionary slowdown over the next six quarters. We expect to see returns to positive YoY gains in mid-2024, led by the utility and industrial sectors. Construction will follow with YoY gains closer to year-end 2024.

Soaring prices and strong demand marked the first half of this year for the electrical community with record growth. Commodity prices have settled a bit but remain uncertain. The supply chain, while still challenged, is a bit more predictable. Backlogged orders are in decent shape and those billings could outpace future sales in 2023. 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.

Looking into the future we see the 2022 Inflation Reduction Act as an advantage to 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.

For now:

This month, the overall outlook and forecasts have moved downward; however, we still expect the electrical economy to finish the year up 11.1% over the prior year. There are two factors contributing to this forecast: Prices have been adjusted down five hundred basis points for 2022 which – combined with the negative economic influence – is lowering the strength of the YoY gains.

Looking at our largest vertical, the construction market, we see increasing weakness. The overall construction market in 2023 is looking to be off on a YoY basis by 10%. Construction in 2024 will start to improve mid to late year but will end the year slightly behind 2023 by just short of 3%. We will be back in growth territory by 2025. The current best opportunities for the construction sectors through 2023 and 2024 are in public works infrastructure projects.

In the industrial market, look to finish the year up 21% from last year’s impressive performance. Deceleration in 2023 will leave the industrial sector off by -6.4% YoY. Slight weaknesses remain into 2024, with returns to positive territory in 2025. We see opportunity in onshoring OEM, electric vehicle assembly, and the automation sectors.

We all need to keep an eye on interest rates, as the FED looks to move them even higher. These increases will precipitate continued market deceleration.

If you would like a full copy of the October DISC Flash report it is available for $100.00 and is complete with supporting data and forward forecasts. You can buy that report here. Or look us up at the NAED Eastern conference in Tampa this week.

You Don’t Have to Opt-In if You Plan and Market

Some thoughts from a strategy and marketing perspective:

• This is a national forecast and its built-on data and projections as of today. Unfortunately, no one has a crystal ball, so …
• For distributors and reps, remember, it is a national forecast. Every market is unique given its local business mix and economic environment. From a non-economist’s viewpoint (mine), there will be plenty of markets that will differ from the forecast due to community investments. From an untrained eye, much of the Southeast and Southwest may represent growth opportunities.
• There are major secular trends that, depending upon product category, geography, and your ability to execute can enable companies to continue to grow.
• Just because a recession is forecasted doesn’t mean that there are not opportunities in the market for those who focus on segments or have a competitive advantage … and a superior strategy. There are ways to opt-out of a recession if one is willing to plan, invest and be aggressive. We recently wrote an article for IMARK outlining steps distributors can take to prepare for / opt-out of a recession. If you want a copy, email me.

So, what do you think about DISC’s forecast? (and remember, 2024 election means the economy either needs to be growing to support a reelection or, if it suffers, change is inevitably guaranteed … that’s politics!)