Latest from Industry Perspectives


One More Year

Jan. 1, 2003
Although this is probably the worst recession the electrical distribution industry has seen in the last 30 years, for the overall U.S. economy this business

Although this is probably the worst recession the electrical distribution industry has seen in the last 30 years, for the overall U.S. economy this business cycle's recession is relatively mild compared with historical cycles.

The overall economy has fared better because aggregate demand in the overall economy is balanced by a number of different forces — consumer demand, business investment demand, government demand and demand from international markets. Consumers and government spending have kept the economy afloat while business has stayed on the sideline.

However, electrical distributors are almost wholly dependent on business investment demand, and that has been very weak. The performance of the business sector and its effect on distributor markets has left distributors with few places to find relief.

While the distributor industrial market was declining in 2000, the contractor market was strong. But for more than a year both segments have been mired in negative growth. The combined dollar volume of the contractor and industrial markets account for better than 75 percent of the total industry sales. If these two segments move in tandem — especially down, as they have over the past year and a half — distributors bleed.

There has been no let-up for electrical distributors since the second quarter of 2001, when total sales fell almost 3 percent. There is no historical period on record when distributor sales have been negative for as many consecutive quarters. By the time this electrical distributor cycle turns the corner, total distributor sales will have fallen for eight consecutive quarters.

The good news is that the electrical industry is almost in the eighth quarter. I expect the final negative growth quarter for total sales to be the first quarter of 2003, and the second quarter of 2003 to barely show fractional growth. By the third quarter, total industry sales should be advancing at a low single-digit rate.

Although this period of negative growth will end by mid-2003, 2003 will be a very tough year for distributors, manufacturers and reps. Total sales will barely break zero growth for the year overall.

One problem with 2003 is that the major segment in residential and nonresidential construction is expected to show negative growth.

This translates into distributor sales to contractors at a negative 5.75 percent for the full year. Meanwhile, distributor sales to the industrial segment won't begin to move forward perceptively until the last half of the year.

Look for relatively strong demand for electrical supplies and apparatus from the industrial sector of the economy. However, it won't impact distributors until the fourth quarter of 2003. Industrial sales could be up as much as 12 percent to 14 percent in the fourth quarter. Institutional sales are expected to increase at a low single-digit rate in 2003. At the same time, utility sales will be up around 3 percent.

Real demand for supplies and apparatus measures the amount of physical volume moved out the door. Distributor sales in current dollars at $68 billion are expected to increase about 1 percent in 2003, but after inflation is taken out, sales in deflated dollars at $50.5 billion will decrease about 1 percent. The current dollar sales are what hit the bottom line. Deflated dollar sales help companies manage real resources such as people.

Between 1998 and 2000, real demand was increasing and the industry was adding resources. But the cumulative decrease in demand between the 2000 peak and the 2003 trough is 11 percent, and the industry has been taking resources out. It's much simpler to manage a business in the face of rising demand than it is in the face of falling demand. This year will be another very difficult year in managing resources.

The author is president of DISC Corp., Orange, Conn. He can be reached at (203) 799-3673 or [email protected].

About the Author

Herm Isenstein

Herm passed away in Sept. 2019 at the age of 86 from brain cancer. He was a good friend to the editors on the staff of Electrical Wholesaling and a prolific writer for the magazine for 15 years.

During his 30-plus years in the electrical industry, Herm Isenstein was the premier economist in the electrical wholesaling industry  If you have any questions about DISC's subscription-based data services, contact  Chris Sokoll, DISC's president at  at  346-339-7528.

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