2024 DISC Electrical Distribution Outlook

For the past few months many have been seeking insight on the electrical market for 2024 as they seek to set their goals.

It was one of the topics of discussion at the NAED Eastern with the consensus (essentially a verbal survey) being “flat” / “low single digits”.

While we all look into our crystal balls and hypothesize on whether the tide will rise or fall and question what the past can tell us about the future, the answer is very muddy. There has been no trends in the past three years other than expect the unexpected.

As we head into 2024 many have macroeconomic concerns … will the economy slow? What will be the impact of interest rates? Will “return to work” reinvigorate the commercial office market? When will IIJA money “flow” to start projects? Will switchgear ever be delivered so the rest of the project be completed? Who will win the “unicorn” projects and what will be the ripple effects in local markets? How are population shifts affecting the electrical industry? Will electrification efforts take hold and drive the business? Global impact on US industrial and construction markets? The price of commodities?

Lots to ponder.

Everyone wants to know the “baseline” so that they can then integrate their business goals to set a sales goal. What will be the impact of new product introductions? Will companies execute upon their marketing strategy? Which vertical markets should be pursued?

Many manufacturers, reps, and distributors utilize DISC to establish a sales baseline for their business. The information is used to estimate market size by customer type, by customer segment, and geographically. It provides a common baseline … and can act as a common economic / market size language for trading partners.

So, I reached out to Chris Sokoll, President of DISC, and asked him to share the 2024 DISC forecast.

2024 DISC Outlook and 2023 review

“The DISC original Forecast for 2023 predicted a slight recession due to FED interest rate hikes and the resulting slowdown in inflation. However, our expectations were proven wrong. The American economy demonstrated overall resilience, and the implementation of the CARES and CHIPS acts provided a boost to the electrical economy, surpassing our initial forecast. Although 2023 wasn’t a robust year, it can be considered reasonable.

Looking specifically at the electrical distribution market, our projection indicates that 2023 will close at $137.4 billion.

We do expect the market in 2024 to slightly decline behind 2023, reaching $135.2 billion (a decline of 1.6%).

It is important to note that this forecast is not without its risks and uncertainties. Overall, performance outcomes in 2023 varied depending on the specific industry and geographical location. Different sectors experienced a mixed bag of results. Despite industry prices falling 2% on a Year over Year (YoY) basis, we expect finishing the year with a 1.4% increase in sales YoY. effectively a 3.5% growth year. As we move towards 2024 and exit 2023, there is an overall sense of future uncertain cautiousness prevailing.

We are thoroughly monitoring current events as they unfold due to their potential impact on our projections. Some of the factors we are closely watching include continuing interest rate hikes, labor unrest, the Ukraine/Russia conflict, the Israel/Gaza conflict, immigration issues at the Southern border, political polarization, rising oil prices, FED policy moves, and the uncertainty surrounding Copper prices. Additionally, we acknowledge the existence of unforeseen black swans, which could also influence our projections. The DISC Monthly Flash Report provides current guidance on changes in electrical economy market conditions. Subscriptions can be purchased from our website.

In conclusion, despite an initial expectation of a recession, the American economy showcased resilience in 2023 with the help of economic stimulus packages. However, caution prevails as we approach 2024, given the multitude of risks and uncertainties in various areas that could shape the future economic landscape. There remains plenty of opportunity for market share growth and targeted opportunity. DISC considers four verticals, Construction, Industrial, Institutional, and utility to provide guidance to assist with market sizing, share calculations, opportunity finding, and resource allocations.”

Because many ask, Chris shared that the DISC models are based on historical reported billings for the full line electrical distributor. We then include forecasted expectations of market demand, inflation, and the impact of policy changes along with some other secret sauce.

Takeaways

DISC utilizes a time-tested algorithmic approach that utilizes various econometric data points to make its projections with the forecast being updated regularly based upon economic and market inputs. The forecast is built upon what revenues are expected to be developed in the calendar year and excludes any backlogs that distributors may have that may bill in 2024 as backlog levels are distributor-specific and there is no industry-wide model to gather the amount of distributor backlog.

The book vs bill issue is important as survey-based insights traditionally have a built-in bias as respondents consider what they also have in backlog and think of sales as “what they will ship / invoice” in the given year.

A wildcard could be commodity prices. With market forecasters projecting that the FED will reduce interest rates 3-4 times this year, this could stimulate the housing and commercial construction markets, thereby increasing copper demand, which, with copper being used for EVs, could increase the price of copper (currently at $3.88). And if there is increased demand, overall electrical industry sales could accelerate.

Many feel the industry slowdown will be Q1, somewhat Q2, and that there will be a better second half of the year.

In working with clients, we’ve gone on the assumption that the market will have nominal growth and that, to succeed, the key is targeting specific verticals and applications specific to the marketplace and then, if feasible, identifying some unicorns to either win or position to win the secondary / tertiary projects.

In Chris’ words, “only the sands of time will tell…”

There’s still time to develop / refine your 2024 strategy … or to get a quick 3rd party perspective. Give us a call.