One indicator the electrical wholesaling industry is finally pulling out of a three-year tailspin that saw electrical distributors' sales plummet more than 20 percent are the new sales forecasts in Electrical Wholesaling's 2011 Market Planning Guide, which reports that industry sales are expected to increase five percent in 2011 to $84.1 billion.
EW's Market Planning Guide, to be published later this month, says the boost in sales comes after an increase of just 0.9 percent in 2010 and a decline of no less than (and probably markedly more than) 14 percent in 2009. EW's editors believe the five-percent increase that survey respondents anticipate for 2011 sounds pretty realistic. It's also right in line with the +4.9% national forecast that Herm Isenstein, president, DISC Corp., Orange, Conn., has developed in his data (see his 2011 forecast below).
The forecast for the 14% decline in 2009 sales comes from EW's survey of electrical distributors and struck the magazine's editors as a bit low, especially when you consider the sales data from 140 EW Top 200 respondents who provided actual sales numbers for 2008 and 2009 showed a 21% average decline and that DISC data for 2009 shows a 23.9% overall decline in 2009 sales. This all being said, it's interesting that the 14% decline in industry sales basically matches the 14.4% decline that EW survey respondents forecast last year for 2009.
Along with providing an annual snapshot of the electrical wholesaling industry, the EW Market Planning Guide, now in its 31st year, provides insight into developing market trends and hot geographic markets. Here are things that stood out in the data collected in this year's survey.
Distributors in the Mountain region are the most optimistic and are forecasting a 11.7% increase in 2011 sales. Colorado and Utah have low unemployment and solid increases in building permits, while Las Vegas and Phoenix, two housing champions of the past, are among the nation's leaders in home foreclosures. Nevada is suffering from massive unemployment and its 14.4% jobless rate is the nation's worst. Construction layoffs account for much of that sorry number, and the state lost 14,200 construction jobs in the past 12 months.
Renewable and tech construction led the 2010 project parade in this region. A $500 million wind farm is under construction in Idaho; Wyoming is adding to its wind portfolio with a new $400 million wind farm; and a $139 million solar plant is under construction in Colorado. Three large data centers are being built in Arizona, Colorado and Wyoming, and Denver is building a new rail and bus terminal.
Other markets that appear to recovering faster than most metropolitan areas include New York, which has several massive construction projects underway at the World Trade Center site, Jacob Javits Convention Center and a new basketball area for the NBA Nets; Huntsville, Ala., where the Redstone Arsenal secured some huge military contracts, and nearby at least $1 billion in commercial development is expected; and the Washington, D.C., metro, where retrofits of federal facilities and comparatively low office vacancy rates are boosting the construction market.
Some of the numbers that measure the commercial market are the worst we have seen in decades. Massive job losses during the recession pushed the national office vacancy rate to more than 20 percent in many major market areas, according to Grubb & Ellis. That's a vacancy rate that only the worst office markets see in “normal” years. Grubb & Ellis reported earlier this year that 16 major cities had downtown vacancy rates worse than 20 percent; and that 22 cities had suburban vacancy rates topping 20 percent.
One reason to be cheerful: Stock prices of many publicly held electrical manufacturers are at or near the 2007 bull-market highs that occurred before the start of the recession. A leading indicator for the overall U.S. economy has always been the direction of the stock market, and industry observers can learn from patterns in the stock price activity of electrical manufacturers, too. It's been a long slog, but when you look at stock prices for companies including but not limited to Cooper Industries (CBE), Houston; Eaton Corp. (ETN), Cleveland; Hubbell Inc. (HUB-B), Orange, Conn.; Littelfuse (LFUS), Des Plaines, Ill.; and Rockwell Automation (ROK), Milwaukee, from Oct. 9, 2007 and compare them to prices three years later, you will find that most of them are at, over or within 10 percent of the per-share price when the market peaked in October 2007.
The “electrical universe” may be smaller than previously thought, at least as measured by government data. As you will learn in Electrical Wholesaling's Market Planning Guide, this year's data is benchmarked to the new sales information published in the 2007 Census of Wholesale Trade for “423610 Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers.” That data says there are 13,277 “merchant wholesalers,” (not counting manufacturers' sales branches and offices) that in 2007 sold $94,237,241 worth of electrical equipment. The number of distributors strikes us as awfully high, and Electrical Wholesaling's editors are counting distributor branch locations to see if it's realistic. EW's staff had been working under the assumption that there were an estimated 6,000 branches run by full-line “pipe-and-wire” electrical distributors and about 1,000 branches run by specialists in lamps, wire and cable, utility products, industrial automation products and other niche product areas. We are assuming that the Census numbers include branches operated by hybrid distributors such as W.W. Grainger Inc., Lake Forest, Ill.; Fastenal Inc., Winona, Wis.; and Johnstone Supply, Portland, Ore., that sell electrical products as part of their market basket, as well as security distributors, battery distributors and some other distributors generally not considered to be part of the mainstream electrical market.
Summary. A basic forecast you can use for your cocktail party conversations over the next few months is this: Business conditions in the electrical market will pick up steam in 2011 with the commercial construction market lagging the overall recovery, the industrial MRO market outpacing most market segments and the residential market improving on a market-by-market basis. Best bets for 2011 will be lighting retrofits, government projects funded by federal stimulus funds, and the residential voice-data-video (VDV) market, where demand should be strong for electrical products needed for low-voltage cabling systems for home offices, big-screen televisions, security systems and the like.