EW/VRP Survey Points to Steady Growth in 4Q 2022, But a More Cautious 2023 Outlook

Although price inflation accounted for roughly half of distributors’ revenue increases 4Q 2022, business remained solid for the 30-plus wholesaler respondents to the most recent Vertical Research Partners (VRP)/Electrical Wholesaling survey.

Nick Lipinski, a VRP analyst, said Q4 distributor sales were up +6.7% on +3.5% volume growth and +3.2% price growth. “While pricing continued to moderate from the record seen in Q2, the +3.2% result was still among the highest reported increases in our survey’s history back to 2006,” he said. “As in each quarter of 2022, electrical equipment sales were higher than revenues for automation equipment or utility products, with +8.9% growth, including price up +3.2%.

He noted some signs of a slowdown in the 4Q 2022 survey results. “While some distributors continued to see strong underlying momentum and an active quoting environment, signs of a slowdown are mounting. Interest rates are clearly having an impact on commercial construction projects. We also heard of some customer pushback on price after an extended period of increases. Backlogs remain at record levels.

“Cancellations were not widely reported but have begun to creep in. Stimulus around infrastructure and energy efficiency are bolstering results as a pocket of strength. Overall distributors are not expecting any major declines, although some reported ‘small domino effects.’ But the tone continues to sound cautious. We heard the first rumblings of bankruptcies with some large electrical contractors in the New York metro area going out of business.”

While respondents’ experiences on product and labor availability were mixed, lead times for some products continue to be exceptionally long.

“Lead times appeared to improve in Q4 though we suspect to some degree this reflects distributors becoming accustomed to the “new normal,” said Lipinski. “We are still clearly years away from returning to pre-pandemic service levels and some distributors express doubt that we ever will. Switchgear lead times remain eye-popping (100-plus weeks in some cases). PLCs and metering products also continue to be very tight. We continue to hear about availability issues with nearly all of the major OEMs including ABB, Eaton, Rockwell, Siemens and Schneider.”

Respondents’ verbatim comments added some interesting color to the data. When asked about lead times, one respondent said, “I don’t even count things in weeks anymore, it’s months.” Said another, “OEMs can’t even give us a ship date, and if they do it’s a guess.”

Distributors were not seeing any sudden slowdown in economic activity, but some are seeing a few project cancellations because of higher interest rates, and one respondent said because interest rates have a lagging effect, the market won’t see their true impact until six to nine months down the road. One distributor said he was seeing “bumps and hiccups,” but no massive slowdown, while another summed up market conditions succinctly by saying, “Not a cliff but definitely heading down.”

Respondents also reported a slowdown in data center investment; steady growth in healthcare/education projects; the positive impact infrastructure spending and an electric-vehicle market that’s set to take off but is “more smoke than fire right now.”

For any questions about the results or to participate in future surveys, contact Nick Lipinski at [email protected] or 203-276-5661.

Click here download a PDF copy of the survey results