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National Factbook

Dec. 1, 2007
If you are searching for economic trend information to factor into your 2008 sales forecast, then you have come to the right place. In this article, Electrical

If you are searching for economic trend information to factor into your 2008 sales forecast, then you have come to the right place.

In this article, Electrical Wholesaling has collected economic data for the segments of the construction and industrial markets that have the most impact on the electrical business. This data should prove more valuable than the general economic forecasts you find in the business pages of most newspapers, which it focus more on retail sales, consumer spending and macroeconomic information than on data that directly affects the electrical market.

It's going to be more important than ever to track economic indicators for 2008 because the data that does the best job measuring the health of the electrical market is really a mixed bag right now, and the general business press seems to be intent on talking everyone into a full-blown recession. The housing market will sit on the bottom step of the economic ladder for most of 2008 and possibly into 2009. But the industrial market data in the 2008 National Factbook points to a business segment still showing some signs of health and a commercial construction market that, while down on the whole, will have plenty of action in many local markets.

First published in 2002, the Economic Factbook is intended to be a companion piece to Electrical Wholesaling's annual Market Planning Guide published each November. The Market Planning Guide provides sales data and key employment statistics readers can use to estimate the size of their local markets. This article takes a broader view to provide electrical distributors, independent manufacturers' reps and electrical manufacturers with national data on trends in construction, industrial spending and demographics.

Copper Prices

Source: U.S. Geological Survey, MetalsWeek and

Even when copper prices run closer to their historical range of 80 cents to $1.20 per pound, manufacturers, distributors and reps that sell wire and cable could always give you the daily price of copper faster than a Las Vegas sports bookie can recite the odds on the game of the week. That's because wire and cable accounts for nearly 15 percent of the average distributor's sales. While no one wants to bet where copper prices will go in 2008, some construction economists expect them to drop from their record highs.

National Office Vacancy Rates

Source: Grubb & Ellis

This statistic is actually more valuable when looked at locally. While the national office vacancy rate has declined to a very healthy 13 percent in 3Q 2007 (down almost a full percentage point from the same period in 2006), local markets are all over the place in terms of available office space. Below the 10 percent vacancy rate that signals a builder's market are New York, Washington, D.C., Portland, Ore., Denver and Philadelphia. At the other end of the spectrum are cities with office vacancy rates topping 20 percent: Detroit, Atlanta, Milwaukee, and Pittsburgh.

Electric Utilities

Source: McGraw-Hill's
2008 Construction Outlook

This market segment has a boom-and-bust building cycle. Construction economists say the long approval process for new power plants make utility construction notoriously difficult to forecast. Construction has stabilized in the past few years, and McGraw-Hill expects spending to drop 5 percent to $12.7 billion in 2008. That's a small decrease compared to the double-digit swings this segment saw earlier in this decade. Over the long haul, the U.S power grid will need additional capacity.

Purchasing Managers Index

Source: Institute for
Supply Management

In 3Q 2007, the Purchasing Managers Index (PMI) started picking up a gradual decline in the confidence of the purchasing managers responsible for making equipment purchases at industrial plants, dropping to 50.9 points in October. A reading of above 50 indicates the manufacturing arena is expanding; below 50 percent indicates it's generally contracting. The PMI was very uneven in 2007, as it featured some early pessimism that was followed by solid readings in 2Q 2007. This is a widely watched indicator in the business press.

Institutional Construction

Source: McGraw-Hill's
2008 Construction Outlook

While a 4 percent increase for 2008 might seem to be slow-growth, this is a huge market sector that includes schools, universities, hospitals and public buildings. Total construction spending in this sector is expected to increase to $118.7 billion, from $114 billion in 2007. Long-term enrollment trends at schools and universities, the aging of the U.S. population and the related need for expanded health-care facilities, and the popularity of “green” government facilities will support growth in this market, according to McGraw-Hill's 2008 Construction Forecast.

AIA Work on the Boards survey

Source: American Institute of Architects (AIA)

Because architects hear about construction projects early in the process, this survey is a good leading indicator for future activity. According to the most recent report, “Over the past six months, the trend in the AIA's Architectural Billings Index has been toward slower growth, compared to the stronger reading of 2005 and early 2006. However, even as the billings figures showed slower growth, inquiries for new projects jumped to one of the strongest readings ever.”

Electrical Contractor Employment

Source: Bureau of Labor Statistics

The number of people employed by U.S. electrical contractors is a dependable indicator for the health of the electrical wholesaling industry because electrical contractors account for nearly 44 percent of industry sales. At 939,400 employees in September, electrical contractor employment during 2007 was solid, ahead of last year's pace, and not far off the 2000-to-2001 peak — the highest numbers in the past 20 years — when annual employment averaged 960,000 workers.

Housing Inventory

Source: U.S. Census Bureau and
National Association of Realtors

Novice market watchers learned the definition of the term “inventory overhang” in 2007. According to a recent Business Week report, data from the National Association of Realtors (NAR) shows that at the current existing-home sales rate of 5.04 million units a year, it would take a 10.5 months to sell the 4.4 million existing homes now on the market. At the height of the housing boom in January 2005, that number touched a record low of 3.6 months.

Total Construction

Source: McGraw-Hill's
2008 Construction Outlook

If you can look past the residential business, the total construction market will actually increase 3 percent, according to the McGraw-Hill forecast. But the forecast says total construction activity will decline two percent in 2008, dropping from $626.7 billion in 2007 to $614.1 billion in 2008. In terms of square feet of new construction, McGraw-Hill says the educational and manufacturing buildings market segments will register gains of five percent.

Housing Starts

Source: National Association
of Home Builders (NAHB)

The bad news is that NAHB doesn't expect total housing starts (single-family and multi-family homes) to bottom out until later in 2008 to an annual rate of approximately 1.2 million, the lowest rate in 15 years. That's down from a record 2 million-plus starts in 2005, and a nine-year run where total starts never dipped below 1.5 million. The good news is the future looks good. After 2010, NAHB expects demographic trends and a continuing wave of immigration to bring millions of first-time homebuyers into the market.

Residential Improvements

Source: U.S. Census Bureau

Looking for a good indicator of consumer confidence? When consumers are feeling good about their jobs in particular and the U.S. economy in general, they spend more fixing up their homes. Unfortunately, the most recent government statistics available go way back to the second quarter of 2007, before concerns on consumer spending started surfacing. Things looked good then, and the residential-improvement numbers were slightly ahead of 2Q 2006. 3Q 2007 numbers may tell a different story when they come out in late January.

Commercial Buildings

Source: McGraw-Hill's 2008
Construction Outlook

This indicator monitors a sweet spot in the building market: the construction of offices, stores, warehouses and hotels. McGraw-Hill's forecast says this segment will slip 6 percent in dollar volume and 11 percent in square footage because of slower absorption of space and tighter lending standards. The report says spending will slip to $91.1 billion in 2008 from $97.4 billion in 2007. While the national outlook is a bit sobering, some downtown markets, including New York and Washington, D.C., will remain strong.

Machine-Tool Orders

Source: American Machine Tool
Distributors Association (AMTDA)

Machine-tool orders offer a quick read on the health of the industrial market because they reflect the sales of the equipment on the factory floor that manufacturers use to shape, mold and form metal for use in their products. This indicator has a lot of “bounce” to it, so don't get freaked out by its volatility. The most recent numbers followed this trend. The September numbers were up 21.7 percent from August, and up 2.9 percent from September 2006. Year-to-date through September, 2007 was up 6.7 percent compared with 2006.

Capacity Utilization

Source: Federal Reserve Board

Another indicator supporting the surprisingly solid nature of industrial America is the capacity utilization rate of U.S. factories. At 82 percent, this figure tops the 80 percent utilization rate generally considered to be the point where factories begin expanding their facilities or retrofitting existing manufacturing lines. As a point of comparison, this figure was around 75 percent to 76 percent during the 2001-2002 recession and was more than 80 percent throughout the 1990s, with the exception of 1991 recession year, when the annual average was 79.6 percent.


Source: McGraw-Hill's
2008 Construction Outlook

McGraw-Hill's outlook for the construction of new factories is a mixed bag in that it expects an 11 percent decline in construction dollars to $16.5 billion, but a 5 percent increase in square footage to 90 million square feet. Construction of auto plants by foreign manufacturers bolstered factory construction in 2007. McGraw-Hill says the construction of a $165 million cement plant in Pennsylvania and an $80 million sheet-metal plant in Alabama will help pump up the construction numbers in 2008.

k-12 Enrollment

Source: National Center for Education Statistics

School-related construction continues to look solid for the foreseeable future because of far-reaching demographic trends. The children of Baby Boomers will continue to fill classrooms in near-record numbers for the next decade. While the construction climate will vary in local markets due to funding constraints and local demographic trends, over the long haul, K-12 schools will remain one of the strongest segments of the construction market.

Higher Education Enrollment

Source: National Center for Education Statistics

The song remains the same for colleges and universities, as Baby Boomers' kids graduate from high school and move on campus. American School & University magazine reports that in 2007 to 2009, colleges will see $45.5 billion in new construction, additions and modernization. The construction of new classrooms, housing, and athletic facilities for the estimated 18 million college students are loaded with the latest in energy-efficient lighting, VDV systems and security networks.

About the Author

Jim Lucy | Editor-in-Chief of Electrical Wholesaling and Electrical Marketing

Jim Lucy has been wandering through the electrical market for more than 40 years, most of the time as an editor for Electrical Wholesaling and Electrical Marketing newsletter, and as a contributing writer for EC&M magazine During that time he and the editorial team for the publications have won numerous national awards for their coverage of the electrical business. He showed an early interest in electricity, when as a youth he had an idea for a hot dog cooker. Unfortunately, the first crude prototype malfunctioned and the arc nearly blew him out of his parents' basement.

Before becoming an editor for Electrical Wholesaling  and Electrical Marketing, he earned a BA degree in journalism and a MA in communications from Glassboro State College, Glassboro, NJ., which is formerly best known as the site of the 1967 summit meeting between President Lyndon Johnson and Russian Premier Aleksei Nikolayevich Kosygin, and now best known as the New Jersey state college that changed its name in 1992 to Rowan University because of a generous $100 million donation by N.J. zillionaire industrialist Henry Rowan. Jim is a Brooklyn-born Jersey Guy happily transplanted with his wife and three sons in the fertile plains of Kansas for the past 30 years. 

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