When baseball philosopher Yogi Berra said, “When you come to a fork in the road, take it,” he wasn’t referring to the current state of the U.S. economy and the trickle-down effect it has on the electrical market. And that’s probably a good thing, because he would have had to choose between an economy that may have a 40 percent chance of falling back into a recession (according to some economists), and a slow- to no-growth scenario that won’t produce any notable sales spikes for at least another year. Even the brightest construction economists on the planet aren’t sure which path the economy will take and for the first time in forever are providing dual forecasts, one incorporating a recessionary scenario and another outlining an extended era of slow growth.

Despite it all, distributors are looking for respectable growth in 2012. Electrical Wholesaling’s 2012 national sales forecast calls for a 5.1% increase. We hope our respondents are correct, but this forecast strikes EW’s editors as a few points high. That being said, around this time last year we were worried that the 2011 national sales forecast of 5% was high, too. As it turns out, they were a wee bit conservative.

According to this year’s Market Planning Guide survey data and a survey we did of Top 200 distributors back in the second quarter, the industry topped this forecast with estimated growth number of more than 8%. This sales increase for 2011 is also within shouting distance of DISC Corp.’s 2011 sales forecast of 9.4%.

It’s interesting to note that of the 236 electrical distributors who provided a 2012 sales forecast on the survey, 41 percent said they expected their sales to stay the same — the single largest group of responses.

Distributor optimism is being fueled by a willingness to invest in their businesses. Distributors are a pragmatic, gutty bunch of entrepreneurs, and they don’t part with their hard-earned dollars unless they see a solid payback. That’s why EW’s editors were impressed by the willingness of many respondents to invest in their businesses in this economic climate. Forty-eight percent of them (159 companies) said they are planning to hire new employees next year, and 33.8% (112 companies) said they will be investing in their company’s IT systems or capabilities. In addition, 12.1% (40 companies) said they will open a new branch, and 11.5% (38 companies) plan to make an acquisition. In addition, other respondents said they plan to upgrade or expand existing locations, add inventory, invest in new markets and become certified by the General Services Administration (GSA) so they can sell to the U.S. government. It sure sounds like these distributors don’t expect another recession. This conviction to invest in their business may be at least partially based in a belief that the commercial lending environment is improving. According to our data, 42.6% of respondents don’t expect any major challenges in obtaining a commercial loan.

The old rules of recovery may not apply this time. In past recessions, you could count on the residential market recovering first, followed by the commercial market and then the industrial market. This time around, it’s seems the order of recovery has been decoupled from the past. The industrial MRO market never fell as far as other segments of the nonresidential construction market and has provided much of what little growth there has been over the past few years in the electrical construction market. The commercial construction market is saddled with challenges like tight lending practices, lack of demand and astronomical office vacancy rates, but it will still probably recover before the residential market in many regions of the United States.

Retrofit of existing commercial facilities is gaining a larger share of the overall construction spend. Even in the darkest days of the recession, distributors could still count on retrofit work — particularly in the lighting market — to provide some sales. On a more macroeconomic level, that’s exactly what’s been happening over the past few years.

Get to know your homebuilders again, particularly those that work on apartment and condo projects. Multi-family housing may lead the residential housing market to recovery. After bottoming out at 135,000 annual units in 2009 — a 70% drop from the 445,000 units in 2007 — McGraw-Hill Construction expects a 17% increase to 205,000 multi-family units in 2012, the third consecutive double-digit gain. Growth in the number of young adults looking for rentals, empty nesters looking to scale down, and a push toward downtown redevelopment support this trend.

Summary. Here’s a forecast you can use for your cocktail party conversations over the next few months: A recession is a possibility, but a surprising number of distributors appear to be optimistic. The fragile recovery is happening in some regions of the country faster than others, and in some end-user markets months or even years before it may improve in other market segments. One sign of this is how many electrical distributors told Electrical Wholesaling they plan to invest in their businesses in 2012.

— Jim Lucy