It may seem tougher than ever to get a read on your market and what the future may hold. Most if not all of the 2020 forecasts from the best brains in the business went out the window when the coronavirus crippled much of the economy, and now economists are cautiously publishing updates to what they expect for the remainder of the year and into 2021. The short take on what most of them are thinking is that we hopefully saw the worst economic conditions in 2Q 2020 and that things will improve slowly from there. The bad news is many economists don’t expect the overall U.S. economy to get back to where it was pre-COVID 19 for up to two years.
With these challenges in mind, EW’s annual Measuring Your Metros market planning feature comes at a particularly good time. When we first started publishing it several years ago, our idea was to get market planning resources in the hands of Electrical Wholesaling’s readers before the strategic planning season starts after Labor Day. In 2020, EW’s editors are writing this article as the coronavirus is spreading throughout even more states than were in its grip earlier this year, and further federal economic stimulus on a grand scale is under tense negotiations between the White House and Congress.
This year, as in the past, we will show you where to find good national economic indicators and other dependable resources to monitor the U.S. economy as it relates to the electrical wholesaling industry. Then we will discuss some handy market metrics you can use to analyze local markets at the state, metropolitan statistical area (MSA) and county level.
FOR A NATIONAL VIEW
If you are a bit of an electrical data geek, you probably have several favorite economists and go-to sources for market data at the national level. To track the overall U.S. economy, Electrical Wholesaling’s editors always like to hear what Mark Zandi, the chief economist for Moody’s Analytics and co-founder of Economy.com, has to say. Months before the Great Recession decimated the U.S. economy from 2007-2009, we heard him speak at the NAHB’s annual residential construction outlook. While other speakers and economists were cheering on the economy and saying the good times wouldn’t end any time soon, Zandi was the only speaker at the National Association of Home Builders (NAHB) event in Washington, DC, who warned the audience about the impending housing bubble and the billions in overleveraged loans that could cripple some of Wall Street’s leading banks. His analysis turned out to be spot on, and since that time, we have always found him to be a fascinating if at times sobering commentator on the U.S. economy.
During July 2020 interviews on CBS’ Face the Nation and CNBC, Zandi said because the coronavirus was spreading so quickly, the U.S. economy could fall back into recession if Congress didn’t pass another sizable stimulus package to help states, schools and the millions of unemployed workers. Zandi said the economic crisis could be particularly acute in COVID-19 hot spots like Florida, Arizona, Texas and parts of California — big states that he said easily account for from a fifth to up to a third of the total U.S. economy. Any economic calamities in these states could easily filter down into the electrical market, because these states command 27% of total sales through electrical distributors, according to Electrical Wholesaling’s latest estimates.
To gather information on business conditions in the electrical market, key sources that EW’s editors rely on include DISC Corp. (www.disccorp.com); the Electrobusiness Conditions Index (EBCI) published monthly by the National Electrical Manufacturers Association (NEMA) (www.nema.org); electrical manufacturers’ shipments and new orders (www.census.gov); and electrical contractor employment (www.bls.gov). DISC’s Christian Sokoll has an article on the electrical economy in this issue’s Speaking Out column on page 32, and you can find NEMA’s EBCI and the other electrical data mentioned in Electrical Wholesaling’s monthly Electrostats department.
National electrical market. The most current national electrical data reflects the issues distributors, independent reps and their customers are now having out in the market. Electrical contractor employment is down, and that’s an issue because they can easily account for 50% of an electrical distributor’s total revenues, and over $50 billion in sales potential for the total U.S. electrical market. At 904,800 employees, national electrical contractor employment in May 2020 was running -5.8% behind May 2019, according to the U.S. Bureau of Labor statistics.
Another important indicator, electrical manufacturers’ shipment, were down even more at -13.3% YOY from May 2019. The May 2020 data was $2,941 million. The more current NEMA June 2020 EBCI data was much more bullish, with its current conditions index up 30 points to 62.5 points (well over the 50-point level indicating improving business conditions), and the future conditions index indicating business conditions six months out improving almost 14 points to 84.4 points. DISC is forecasting double-digit declines in national U.S. electrical sales for the remainder of 2020 but expects the market to turn positive by mid-2021.
Another good resource is an electrical industry survey DISC and David Gordon’s Channel Marketing Group (www.channelmkt.com) launched in March to track the impact of the COVID-19 coronavirus on the electrical market. Through June, business for distributor respondents was down -11.5% YOY; off -7.9% YOY for manufacturer respondents; and was down -18.8% for independent rep respondents.
When you need national data specific to the overall industrial or construction markets that combined easily account for more than 70% of all sales through electrical distributors, some good stats to watch are the Purchasing Managers Index published monthly by the Institute for Supply Management (www.ismworld.org); machine-tool orders from the Association for Manufacturing Technology (www.amtonline.org); granular construction market and project data from Dodge Data & Analytics (www.construction.com or ConstructConnect (www.constructconnect.com); and a good leading indicator for the construction market — the Architecture Billings Index (ABI) published by the American Institute of Architects (AIA) (www.aia.org). AIA also publishes the Consensus Construction Forecast.
A $99 annual subscription to Electrical Marketing newsletter (www.electricalmarketing.com) provides regular summaries of key data available from these sources as well as valuable local market data, and Electrical Wholesaling’s monthly Electrostats department offers a quick summary of many key economic figures you can use to track the overall electrical market and U.S.
Industrial market. The closely watched Purchasing Managers Index, a monthly survey of industrial purchasing managers, showed an encouraging increase in June with a 9.5-point increase to 52.6 points that puts the index back into growth territory. The data on new machine tool orders from www.amtonline.org, wasn’t nearly as encouraging, as the May data of $212.66 million was off -5.5% from April and May and off -42.6% from May 2019.
Construction market. AIA’s ABI showed some improvement in June, with an eight-point increase from 32 points that was still well under the 50-point threshold that indicates improving business conditions at architecture firm. The ABI is a good early indicator for the construction market because it typically leads project starts by at least 9-12 months. The June commentary on current construction activity from Richard Branch, chief economist for Dodge Data & Analytics, struck a rather cautionary note (see Newswatch on page 6), and AIA’s mid-year update of its Consensus Construction Forecast was also very careful not to call for any immediate dramatic improvement in the construction market.
As a result of the partially shutdown economy, businesses and organizations will continue to be hesitant to invest in modernized or new facilities, according to a mid-year update to the American Institute of Architects’ Consensus Construction Forecast. AIA said the trend ends an almost decade-long expansion in construction spending. The AIA Consensus Construction Forecast Panel — consisting of construction economists from Dodge Data & Analytics, IHS Economics, Moody’s Analytics, FMI, ConstructConnect, Associated Builders & Contractors, Wells Fargo Securities and Markstein Advisors — projects spending on nonresidential facilities will decline just over -8% this year, and another -5% in 2021. The commercial building sector is expected to be the hardest hit, with spending projected to decline almost -12% this year and another -8% in 2021. The industrial sector is slated to see declines of -5%this year and -3%next year. While institutional buildings will fare the best on the nonresidential side, spending on these facilities is projected to drop almost five percent this year, and another -2% in 2021.
“As much of the economy was shut down in mid-March to help limit the spread of the pandemic, there was hope that after the initial steep decline in economic activity there could be an almost equally quick recovery,” said AIA Chief Economist Kermit Baker in the press release. “However, since mid-June economic growth has stalled. The timing coincides with a spike in new COVID-19 cases across the country, and the resulting pause or roll-back of reopening plans in many states.”
AIA offers further details on its mid-year update to the Consensus Construction Forecast at www.aia.org. It expects a surge in facility retrofits because of a dramatic need for post-pandemic design in most existing buildings, but less demand for more office space because of declining office employment and the popularity of telecommuting; big declines in demand for hotels in the near future; and limits to the amount of new educational construction because of budget issues and modest declines in college enrollments.
ON A MORE LOCAL LEVEL
For most Electrical Wholesaling readers, this is where the rubber meets the road. The national data at the 35,000-foot-level discussed in this article is good for an overview on the overall direction of the market and is an important point of comparison, but local market conditions can and usually do vary wildly from the national level. In analyzing the latest available data on population increases, electrical contractor and industrial employment and building permits we found that despite the current economic misery, some growth on the local level can be found in MSAs that fit one of the following profiles.
The big dogs. Metros with more than 2 million residents expected to add population the fastest over the next few years. Phoenix, Dallas, Austin, Atlanta and Tampa-St. Petersburg continue to add new residents (See chart on page 18).
Growth belts— Economically supercharged regions of the U.S. Raleigh-Durham, Austin-San Antonio, San Jose-San Francisco and Colorado’s Front Range (Colorado Springs north through Denver and Boulder to Fort Collins, and out to Greeley) are examples of regions doing better than most other metros right now. San Jose’s downtown area will have a completely new look in a few years because of all the downtown construction there right now. Before the COVID-19 coronavirus hit, news reports out of Austin said there were more than 30 new office towers planned for the city.
Tech is tops. While commercial construction has slowed in these markets, in “normal” economic conditions, you can usually count on tech hubs like Silicon Valley-San Francisco, San Diego’s biotech patch, Boston, Austin and Seattle to outpace other metropolitan areas.
Stars of the Sunbelt. Big-time population growth continues to drive residential and commercial markets in multiple MSAs in Florida, South Carolina, North Carolina and Texas, Phoenix and much of Colorado’s Front Range (See chart on page 18).
Swinging high and low. Cyclical metros that can be really hot or scary-bad. Examples of these markets include Dallas, Houston, Orlando and Phoenix.
Vacation land, lifestyle, retirement havens & nirvana for telecommuters. Bozeman, MT; Bend, OR; Boise, ID; St. George, UT; Myrtle Beach, SC; and Southwest Florida bank on the leisurely lifestyles they can offer to attract new residents and businesses. The latest population data shows that the Myrtle Beach-Conway-North Myrtle Beach, SC-NC MSA averages 47 new resident moving in every day.
Ports, freight rail lines and intermodal hubs. Port construction and investment in rail lines and intermodal hubs drive growth in these MSAs. All of the larger ports, including Long Beach-Los Angeles, Houston, Oakland and New York-New Jersey have benefited from this trend. Activity in some smaller ports, like Savannah GA, also is strong.
Small but mighty. Metros with less than 200,000 residents showing all the signs of big-time growth. See vacation/retirement/lifestyle metros. Census data shows that micropolitan markets in more rural/ex-urban areas like Bozeman, Helena and Kalispell, MT; Cedar City and Heber, UT; and Williston, ND are growing the fastest.
METRICS THAT MATTER
The overview of national electrical market indicators presented earlier offers a quick snapshot of the economic health of the electrical wholesaling industry. That’s an important perspective to have when analyzing local markets because you can compare how a county, MSA or state is doing compared to the national growth averages for the same metrics.
Most EW readers will spend more of their time analyzing the data for local markets of interest, looking at things like the change year-over-year in electrical sales potential; the number of people employed by electrical contractors or industrial companies in the local markets; and trends in residential housing construction and population growth. The U.S. government provides free monthly data for several key measures that will prove helpful in this endeavor:
- Electrical contractor employment
- Industrial employment
- Building permits
- Population growth
The good news is that this data is available, and it’s free. The bad news is that it’s always at least a few months old, so in some ways the you’re looking at a local market area in the rear-view mirror to see where it has been. If you need forecast data for local markets looking out a few years, you can purchase it from DISC Corp. (www.disccorp.com). Christian Sokoll recently purchased the company from its founder, Herm Isenstein, who passed away in Sept. 2019.
Electrical contractor employment. As mentioned earlier you can use this data to create an estimated sales potential for different areas of geography when you use the EW Market Planning Guide’s sales-potential-per-employee multiplier for electrical contractors of $65,617. Through May 2020, the MSAs that added the most electrical contractor employees compared to May 2019 were Austin-Round Rock-Georgetown (+585), and Las Vegas-Henderson-Paradise (+559). The table on page 15 show the 25 metros that added the most contractor employment.
Industrial employment. You can use this data in the same manner as the electrical contractor data by plugging in EW’s sales-per-employee multipliers for the industrial market: Industrial MRO - $801 per employee; Industrial OEM - $837 per employee; and Factory Automation - $109 per employee. The “Total Estimated Industrial Sales Potential” data shown in the chart on page 17 combines these three estimates for each metro. Once again, the Austin metro led the pack, with an increase of +1,467 industrial employees from May 2019. Other metros showing sizeable increases were Palm Bay-Melbourne-Titusville, FL (+667); and Spartanburg, SC (+500).
Building permits. You can find monthly building permit data at the MSA and state level at www.census.gov and always get interesting commentary on residential construction trends at www.nahb.org. The table on page 19 allows you compare residential building activity in both largest and small markets by comparing annual total building permits per 10,000 in population. By this measure, some fairly small MSAs topped the list — retirement mecca The Villages, FL MSA, with 221 total permits (single-family and multi-family) per 10,000 in population; fast-growing St. George, UT MSA (200 permits per 10,000); and vacation/retirement hot spot Myrtle Beach-Conway-North Myrtle Beach, SC-NC MSA (158 total permits per 10,000).
Population growth. We have talked a lot about population growth in this article, and for good reason — there’s a direct correlation between the number of new residents moving into (or leaving) a market area and the level of residential construction activity, which in turn feeds the construction of strip shopping centers and other retail areas, new schools and hospitals and other commercial and institutional construction. You can get annual and historical population data at the state, MSA and county level and use it to measure a geographic area’s growth many different ways. The chart on page 18 ranks metros by New Residents per Day, and the map on page 16 gives you an idea of net migration (the number of residents moving in or out of an area) patterns on a geographic level.
Summary. The data sources from the federal government profiled in this article can give you a good feel for the health of your local markets and potential for growth down the road. Blending this data with information on local construction projects, plant expansions and other local economic data such as the unemployment rate and news on local business start-ups will offer a good basic economic profile of a local market. If you don’t have the time to gather this data yourself, as mentioned earlier, a $99 annual subscription to Electrical Marketing newsletter offers 24/7 online access to these local economic indicators. DISC Corp. is also a good source of electrical sales forecasts by customer type at the local market level and other sales forecast data.