2008 Industry Growth Update

Hello again!

As you may have noticed, I took a little blog-cation during the summer. But I’m back to catch up on the news in these uncertain economic times. In the coming months, I’ll also let you know about some new tools to help with your 2009 planning.

Let’s get started by checking on the wholesale distribution industry’s growth rates so far in 2008.

As you can see in the chart below (click to enlarge), year-over-year quarterly growth rates in revenues were a robust 14.7 percent in the second quarter of 2008. However, the growth rate was a much more modest 1.0 percent after adjusting for the effects of commodity price inflation. In case you are wondering, my calculations are based on sector-specific wholesale distribution deflators created by the Bureau of Economic Analysis.

Once again, we can see the distorting effect of the commodity price bubble. Nearly two-thirds of the industry’s nominal revenue growth came from just two inflation-driven commodity sectors (Agricultural Products Wholesale Distributors and Oil and Gas Products Wholesale Distributors). Other sectors with large inflationary growth gaps include Office Product Wholesalers and Paper Merchants, Chemicals and Plastics Wholesale Distributors, and Pharmaceutical Wholesalers.

Wholesale distribution executives should make sure to measure their company's growth using metrics that account for inflation. For example, you can compute a price index for your product lines and adjust revenues accordingly. Another approach would be to measure growth using non-revenue metrics such as units shipped or number of order lines.

Meanwhile, the current commodity price bubble, which dates back to 2002, may be bursting. (See Charting the Breakdown in Commodities Stocks.) Look out below!