Indications are 2022 will be another good year. While DISC (www.disccorp.com) sees a slowdown, the year as a whole should be up +11% (give or take) from 2021’s impressive performance. However, this year’s increase was not all demand driven, because the year-over-year (YOY) price increase of +16% contributed significantly to 2021’s gains.
The electrical economy started to tap the brakes on the 2022 double-digit growth in 2Q 2022 with additional demand deceleration throughout the year. The four Federal Reserve (FED) driven interest rate increases from May to September have really started to cool off the momentum. The FED has increased the Federal Funds rate from 0.75% to 3.25%, potentially with more rate increases on the horizon before year-end. As intended, this is a big detractor of investments and will continue to slow demand and cool prices.
2023 will be a year of working with a recessionary environment. Here at DISC, we started thinking about the possibility of recession back in August as the Federal Reserve was planning another rate hike. Our 2023 forecast has the electrical wholesale community at $126.4 billion in total sales, down from $136.6 billion in 2022. In total, 2023 will be off 2022 sales by -7.5%. The largest losses will be in the contractor vertical market with YOY reductions in electrical construction investments off -10%. We are forecasting demand weakness in industrial, institutional, and utility markets as well. We are projecting a rally starting in the fourth quarter of 2023 with returns to positive year-over-year results by Q3 2024 and Q4 2024.
On a positive note, the Inflation Reduction Act looks to position the electrical distribution community for great long term growth opportunities. Here are the highlights:
- $27 billion to deploy low and zero emissions technologies
- $1 billion to advance zero emissions heavy duty vehicles
- $1 billion in Zero Building Energy Code adoption
- $750 million to facilitate the sitting of interstate electricity transmission lines
- $87 million towards low-emission electricity programs
This a just a small portion of the potential upside for our industry. There are also tax incentives focusing on combating climate change along with clean energy tax credits. Read the 12-page summary of the legislation prepared by the bi-partisan National Conference of State Legislatures at www.ncsl.org.
While 2023 may be a bit of a challenge, the long-term prospects for the electrical business remain strong. Looking at new opportunities and understanding the market and available resources will help you outperform the market. DISC is here to provide you with market intelligence and forecasts to help you navigate the road to success. For more information on our data, contact us at 346-339-7528 / [email protected]