A Bad Q1 for Distributors, but the Worst is Over
The recession is not over, but we are at (or near) the bottom. Time to start getting ready for the emerging risks associated with the coming economic recovery.
The first quarter of 2009 was horrible for wholesaler-distributors. The chart below shows the change in revenue from Q1:2009 compared to Q1:2008 – the raw numbers as well as the real (inflation-adjusted) figures. (Click to enlarge the chart.) These data are not seasonally adjusted, making it easier to compare with your own companies. See the latest Wholesale Distribution Economic Reports for a definition of each sector.
While my 2009 outlook for many wholesale distribution sectors has worsened, we are still on track for recovery in 2010. The latest economic data show that many sectors are either stabilizing (or merely getting worse at a slower rate). However, consistent year-over-year growth will not return until 2010.
The question is no longer "when will the recovery begin?" but rather "what will the recovery look like?" The recovery will probably be slow compared to historical norms. The most likely scenario appears to be a slow "U-shaped" recovery, assuming no major policy errors.
However, I believe there there is a credible scenario developing for unexpectedly rapid growth in 2010/2011 -- a “V-shaped” recovery that could sow the seeds for much bigger problems because this scenario carries a significant chance of inflation.
In this inflationary scenario, the value of the dollar will drop and commodity prices will soar along with the dollar cost of imported products (such as oil and major industrial commodities.) At the same time, an inflationary spike creates the risk of higher short-term interest rates and a double-dip recession.
So, buckle your seatbelts and get prepared for significant economic volatility!
4 comments:
Adam - from an electrical viewpoint, these numbers would be considered as positive, especially after hearing reports from the NAED Annual meeting.
As you know, some of these industries lag the economy. Which ones do you think will be early beneficiaries of a recovery.
David,
Right now, I think industrial markets will recover faster than many people expect. Construction markets are also showing signs of life, esp. public and non-res. Residential construction remains deeply depressed relative to the bubble years, but all signs still point to a residential construction recovery in early 2010.
Being at the bottom is not the same as recovery, but I predict that 2010 will surprise a lot of people.
Adam
I notice that you don't get a lot of comments but I want you to know that this is great information. Thanks from a distributor CEO!
Hey Adam, just wanted to sent a quick note thanking you for keeping us apprised of the “in’s and out’s” of our current economic state. We receive tremendous value in tracking your message, along with other industry and non-industry market opinion leaders. Your message is always; clear, concise, and fretful (over the last several months anyway)…nonetheless, it is what it is.
It’s critical for us to have a strong grasp of the current realities, which allows us to make good unemotional business decisions and your feedback is amongst those I value.
Hope all is well in your world and all the best for a strong finish to 2009!
Best regards,
Dan
Daniel P. Burnham
President
www.IndustrialBuyers.com
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