Industrial Outlook

By Bridget McCrea

Of the many market segments that electrical distributors work in, industrial is an area that's seen its shares of ups and downs over the last few years. A major drag on the economy just a few years ago, industrial markets are now seeing a slight uptick—a sign of positive momentum that could carry distributors through at least until the end of the year.

According to the Baird Electrical Distribution Survey for the second quarter of 2017, which is produced in partnership with tED magazine, companies experienced a 2.9 percent year-over-year growth in electrical sales during that period, and a 1.8 percent increase in datacomm. This was slightly below the 4.2 percent growth seen across the broader distribution industry, according to the report.

Within electrical, this reflects a mild deceleration as compared to the “strong” growth seen during the first quarter. “Our conversations with survey participants revealed more gradual improvement in capital spending (vs. MRO) – which may explain the slight loss of momentum sequentially,” Baird reports, “while indications are that non-residential construction activity remains steady. Within datacomm, on the other hand, industry growth remains steady backed by continued data center spending.”

Picking up Steam
In the U.S., electrical distributors reported slightly above-average growth in the Northeast, Midwest, and South, with only the West slightly lagging. Outside the US, reported growth in Canada matched the survey average, while international trends again fell below.

“We saw a real upsurge in business in January/February, I think a lot of that was pent-up demand,” one respondent said. “It leveled back off once that pent-up demand was kind of satisfied. Business is still up year-over-year, however.”

Pinpointing MRO as the segment that's “leading the charge” right now, respondents said that industrial was “up in the low single-digits” during the second quarter, and that both commercial and light industrial construction are currently “picking up steam.”

Brad Van De Sompele, president at Frontier Electric Supply, says that his firm is being impacted on all fronts right now from a political perspective, and that “none of them are positive.” Focused primarily on the OEM market, he says Frontier has some customers who have seen growth in 2017. “The fact is, global competition is making it harder for them, as is the lack of good, qualified engineers to fill open positions,” Van De Sompele points out. “The lack of clarity on immigration and work visas right now is rippling through a lot of our customers' businesses.”

Oil Prices Matter
Maxwell Gabin, branch manager at Rexel in San Diego, says that 20 to 30 percent of his branch's business involves the industrial segment, and that many of those customers are seeing a positive turnaround so far in 2017. Those firms that rely on the oil industry continue to see fluctuations—right along with oil prices—he notes, but others are experiencing comebacks. “We have one customer whose business was cut in half when oil prices dropped,” says Gabin, “but others are turning around now and having a good year.”

Even with those upticks, Gabin says certain industrial segments remain “kind of slow” compared to where they used to be. “The ones that aren't as tied to the price of oil have been coming back up to speed,” says Gabin, who is optimistic about industrial's future through the rest of 2017 and into 2018. “We had a great 2016 and so far 2017 is looking to be just as busy.”

Looking forward to the third quarter, Baird survey respondents expect aggregate growth to improve modestly in electrical to 4.0 percent, while datacomm is expected to accelerate to 4.1 percent. Both markets are expected to slightly lag the 4.5 percent growth forecast for the broader industrial distribution market.

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McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.