2018: The Industry’s 61-Home Run Year

The industry is rolling along at a nice pace. But are we in the late innings of this business cycle?

I am a traditionalist when it comes to  baseball statistics. And although Barry Bonds, Mark McGuire and Sammy Sosa all hit more home runs in a single season than Roger Maris, because of the cloud of steroid use that hangs over these sluggers, I still think of the 61 home runs Roger Maris hit in 1961 for the Yankees as the real home run record.

I was thinking about that home-run record the other day while reminiscing about how about 20 years ago EW and our sister publication, Electrical Construction & Maintenance (EC&M), annihilated our budget for ad pages. The former president of our company congratulated us all at a sales meeting and said, “Always remember and cherish the good times. This is your 61-home run year.”

That analogy works for where the electrical economy is at this year. The combination of a reasonably strong nonresidential construction market and steady business investment, solid housing starts, tax cuts, comparatively low interest rates and consumer optimism have mixed together in a rather tasty economic stew for most distributors, manufacturers and reps. And while there’s nothing on the horizon — unless I am missing some potential Black Swan — that says business conditions will drop off sharply, I don’t see any “Check Engine” lights that warn of a recession right down the road.

But as we enter the 2019 planning season, several key indicators suggest we proceed with caution and that the electrical market’s growth rate may shift down about a point next year.

GDP. IHS Markit expects U.S. GDP to drop from +2.9% in 2018 to +2.7% in 2019 and to  +1.9% in 2020. Yes, the overall U.S. GDP hit a lofty 4.1% last quarter, but most economists don’t think that’s sustainable on an annual basis. I keep a close eye on the U.S. Bureau of Economic Analysis’ data on the Gross Metropolitan Product (GMP) for local markets, and the fastest-growing metros, including  Austin and Midland, TX, and Raleigh, NC, only hit 4% GMP growth in the best of years.

AIA’s Consensus Forecast for non-residential construction. This forecast published twice a year by the American Institute of Architects (AIA) is calling for a -0.7% drop in nonresidential construction activity in 2019.

DISC Corp. Herm Isenstein, president, DISC Corp., sees electrical industry sales dropping by about a point in 2019.

Reasons to be cheerful. It’s not all doom and gloom out there by any means. Yes, the impact of the tariffs on steel and aluminum prices have injected some uncertainty into the market as far as project costs (see cover story on page 18). And copper prices have gone muy loco again and are all over the place.

But four core electrical market indicators are still solid. The National Association of Home Builders expects building permits to increase +0.6% in 2019. Electrical contractor employment continues to cruise well above the lofty 900,000 level only seen in the best of times. And the Purchasing Managers Index published by the Institute for Supply Management and the Electrobusiness Conditions Index (EBCI) published by the National Electrical Manufacturers Association (NEMA) remain in growth mode.

EW’s monthly Electrostats department offers a great top-level view of how the electrical market is doing with its selection of more than 20 key indicators. And if you need electrical sales potential data  and a nice package of related market data down to the state, metro or county level, Electrical Marketing newsletter’s package of market data that’s available as a part of an annual subscription is an absolute bargain at $395 per year.

Another great data resource for your 2019 market planning is DISC Corp., Orange, CT. Herm Isenstein has been providing the best local-level electrical sales forecasts for more than three decades. For more information on them, contact Herm at [email protected]/(203) 799-3673.

Ultimately, all business is local and your salespeople and managers should be able to give you some indication of where local markets are headed in 2019. But if you need an unbiased third party to offer some insight into where the industry is headed, EW and DISC are here to help.

 

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