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Beating the Averages

Aug. 28, 2019
There’s lots of economic noise out there. Don’t get distracted and talk yourself into a downturn.

Political junkies and fantasy baseball enthusiasts may be familiar with statistician Nate Silver, the founder of www.fiverthirtyeight.com, a website focusing on politics, economics and sports. Silver is also the author of the book, The Signal & the Noise, which offers some great insight into the art and science of probability and forecasting. In the book, Silver writes, “The signal is the truth. The noise is what distracts us from the truth.”

With that thought in mind, I believe we can get a clearer sense of where the electrical economy is headed over the next few months by not getting distracted by the noise in the overall economy and instead listening to the economic signals that more directly reflect the electrical market’s health.

At press-time in late August, the stock market had recovered most of its mid-month losses from when some analysts and algorithms got spooked by a brief inversion of the yield curve (when long-term bond rates fall below short-term bond rates). It’s considered to be an early indicator of a possible recession down the road.

While most economists agree the U.S. economy is slowing down after a near-record run and that a mild recession is possible, so far many of the business pundits forecasting gloom and doom around the next bend are backtracking a bit now that financial markets have settled down, at least for the time being.

If the overall U.S. economy isn’t quite as a bad as some of the more pessimistic prognosticators would have us believe, what kind of business conditions can we expect in the electrical market for the next few quarters? The answer largely depends on the health of the end-user market segments in the largest metros in those regions of interest.

For most companies in the electrical wholesaling industry, national economic data will be most valuable as a benchmark for comparisons with local market activity. For example, national employment data for the electrical contractor and industrial markets when combined typically account for more than 70% of all electrical sales, still enjoy strong year-over-year and quarter-to-quarter growth and are showing no signs of deceleration. Of much more interest to most distributors and reps is the employment data for the counties, metropolitan areas and states in their local markets.

Local variances to the national level of construction activity are also often quite pronounced. Dodge Data & Analytics recently published data on commercial and multi-family construction starts through June (ranked by dollar amount) that showed total U.S. dollar volume for this key construction market segment to be down -6% YOY to $100.8 billion.

Of much more interest was some other data in the report. The 20 metropolitan statistical areas (MSAs) with the most construction activity in this segment accounted for 64% of all the activity. Of those metros, nine were enjoying YOY increases of better than +20%. Leading the pack were Cincinnati-Middletown, OH-KY-IN (+130%); Nashville-Davidson-Murfreesboro, TN (+112%); Atlanta-Sandy Springs-Marietta, GA (+69%); Washington-Arlington-Alexandria (+50%); and Austin-Round Rock, TX (+39%).

As you drill down into the project activity in these local markets, other trends emerge. For instance, the Dodge Data & Analytics report highlighted the strength of data center construction in the overall U.S. market, and in the Washington, DC and Dallas metros in particular. The Washington, DC metro, the largest market for data centers in the United States, enjoyed $1.2 billon data center starts through June.

Data centers can be big business for distributors in their customers. In its most recent conference call, WESCO execs said the company recently got a “multi-million-dollar order for data communications material in support of a new data center for a large U.S. public university.”

The many examples of strong local markets and project types bring us back to one of the findings in Nate Silver’s book: Don’t get distracted by the noise and focus on the signal. Even in a slowing business climate, plenty of local markets and business segments are beating the national growth rate. Listen carefully to what local markets tell you.

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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