Distributor respondents to the quarterly Electrical Wholesaling/Vertical Research Partners (VRP) survey said Q4 2023 distributor sales were up +2.4% driven by +1.5% of price with volumes up a modest +0.9%. The two-year growth stack softened to +9.1%, a historically solid result but below +10% for the first time since Q2 2021. Pricing picked up by roughly a point sequentially. Some distributors appear to be actively pushing price in support of margins.
Overall volume growth was better than expected as distributor respondents had predicted a sales decline in Q4 2023. Automation results were strongest among product categories at +3.2% including a leading volume performance (+1.9%). It sounds like improved availability and generally healing supply chains are supporting better backlog conversion. Power results were softest at +1.9%, with volumes essentially flat. Electrical equipment sales were up +2.1% on relatively equal contributions from volume (+0.9%) and price (+1.2%) and the category continues to lead on a two-year stack basis at +11%.
Q1 2024 outlook inflects higher
Following the strong post-COVID recovery period, distributors have been forecasting decelerating levels of sales growth for roughly two years, culminating in an expected -1.6% decline in Q4 2024. While there were definitely some pockets of softness that weighed on the overall Q4 2023 results, sales growth remained solidly positive, with several distributors in fact indicating a record quarter to close out 2023. The outlook for +4% growth in Q1 2024 is a clear inflection point after the extended period of deceleration and suggests we may have navigated through the slowdown without ever seeing sales turn negative.
Fed more in focus than election year dynamics
Distributors acknowledged the potential for some election-year uncertainty to creep in around the edges but historically this has not had a meaningful effect on underlying activity. Most sounded much more focused on the Fed, with the potential for lower rates to provide a project-related boost.
Some distributor contacts indicated higher interest rates are starting to take a bite out of residential and commercial construction projects but overall most have been surprised by the resilience of activity in the face of higher rates.
Pricing pressure seems to have subsided according to several respondents. “Seeing fewer price increases, from five-to-six a year at the craziest now back to maybe two,” said one distributor.
Lead times are still top of mind, and one respondent said getting switchgear is still an issue. Another distributor was a more optimistic. “Manufacturers are finally filling backlog, catching up on some things. Likely still have issues for years to come,” they said.
