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Signals, Static & Echoes

After many twists and turns, 2019 may turn out to be an average year for the electrical market.

As the 1Q 2019 economic data rolls in, you may hear some of the calls for an economic recession in the next year to 18 months fade to a whisper.

On the macroeconomic front, the +3.2% increase in GDP for the quarter surprised some economists, and at press-time, many China watchers sounded more optimistic that a trade deal might soon calm some of the current geopolitical economic jitters. And four months after Wall Street found a big ‘ol lump of coal in its stocking during the Christmas season when the S&P plummeted -17% from the 2018 high it hit in September, the market was testing new highs again in late April.

How’s it going? Meh. Despite the good news on the U.S. macroeconomic front, EW’s editors are picking up some conflicting signals from our favorite economic indicators, that in total can best be summarized by one Yiddish word — “meh.” Nothing to get excited about, but nothing overly awful, either.

On the construction front, the U.S. Census Bureau’s most recent data tells us total construction was up +1.1% year-over year in February and that single-family housing starts started to sag in December, when the three-month average YOY rate-of-change turned negative and shows a -5.9% YOY decline through March.

Electrical manufacturers’ shipment data through February from the U.S. Department of Commerce adds to this rather uninspiring scenario, as the three-month rate of change dropped to +0.7% after a positive run in the +6% to +8% run from July 2018 through Oct. 2018.

Reasons to be cheerful. Although this economic data paints a pretty sluggish scenario, we are finding that electrical distributors are more optimistic  in their 2019 forecasts. Of the first 50 respondents to EW’s 2019 Top 200 Electrical Distributors survey, 29 are expecting growth this year of at least 6%, and 10 said they expect their annual growth to hit +10% or better.  These expectation correlate with the +6.1% national sales increase published in EW’s 2019 Market Planning Guide, and DISC Corp.’s +6.3% forecast for overall industry growth in 2019.

Yes, all business is local, and the forecasts from many of our Top 200 distributors respondents reflect the business conditions in the regions of the United States in which they operate. But it’s still refreshing to see bullish forecasts from all over the country. Interestingly, the distributors forecasting double-digit growth were not just from hot spots in the Sunbelt like Austin, TX; Phoenix, AZ; San Diego, FL; multiple metros in Florida; or Colorado’s Front Range.

Another positive market trend for construction-dependent distributors that touches many metropolitan market areas in all regions of the United States, is the number of multi-billion-dollar downtown construction projects revitalizing the urban core in many cities. When you figure that electrical work accounts for an estimated 10% of the total cost of a construction project, it becomes quickly apparent just how much redevelopment projects on this scale can impact the electrical market.

Electrical Wholesaling has for several years been reporting on the progress of the Hudson Yards development on Manhattan’s West Side and Boston’s transformative Seaport district. But plenty of other truly massive projects are either underway or on the drawing boards in other cities, too, including the Wharf in Washington, DC, and Amazon headquarters in nearby Crystal City, VA; Atlanta’s $5 billion Gulch redevelopment; Tampa’s $3 billion Water Street project; Miami’s Brickell neighborhood; several ambitious redevelopment projects in Chicago, including the $6 billion Lincoln Yards development; waterfront projects in San Francisco; and billions in new urban redevelopment in downtown Los Angeles.

The moral of this year’s economic story is to not get distracted by all of the macroeconomic noise. Yes, a recession could happen in the next year or so. But instead of economic conditions deteriorating drastically into a full-blown recession, a gradual cyclical slowdown is more likely and may have already started in some market segments, like residential construction, or some niches within the industrial market.

To get through this year and prepare for the next, tune out the static and listen more closely than ever to your customers about what they are seeing in the market. They have a track record of  being much more in tune with the electrical market than any macroeconomic prognosticator.

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