Distribution Trends

A Bad Q1 for Distributors, but the Worst is Over

2009-06-15T16:21:00.009-05:00

The recession is not over, but we are at (or near) the bottom. Time to start getting ready for the emerging risks associated with the coming economic recovery.

The first quarter of 2009 was horrible for wholesaler-distributors. The chart below shows the change in revenue from Q1:2009 compared to Q1:2008 – the raw numbers as well as the real (inflation-adjusted) figures. (Click to enlarge the chart.) These data are not seasonally adjusted, making it easier to compare with your own companies. See the latest Wholesale Distribution Economic Reports for a definition of each sector.

While my 2009 outlook for many wholesale distribution sectors has worsened, we are still on track for recovery in 2010. The latest economic data show that many sectors are either stabilizing (or merely getting worse at a slower rate). However, consistent year-over-year growth will not return until 2010.

The question is no longer "when will the recovery begin?" but rather "what will the recovery look like?" The recovery will probably be slow compared to historical norms. The most likely scenario appears to be a slow "U-shaped" recovery, assuming no major policy errors.

However, I believe there there is a credible scenario developing for unexpectedly rapid growth in 2010/2011 -- a “V-shaped” recovery that could sow the seeds for much bigger problems because this scenario carries a significant chance of inflation.

In this inflationary scenario, the value of the dollar will drop and commodity prices will soar along with the dollar cost of imported products (such as oil and major industrial commodities.) At the same time, an inflationary spike creates the risk of higher short-term interest rates and a double-dip recession.

So, buckle your seatbelts and get prepared for significant economic volatility!

My Mid-Year Economic Update: Free Webcast

2009-06-01T12:41:00.006-05:00

The latest economic data show that many sectors of the economy are either stabilizing – or at least getting worse at a much slower rate. As I have been saying for some time now, we will probably look back on the past two quarters as the bottom of a very ugly recession by historical standards.

Get yourself caught up on the economy by joining me next Tuesday, June 9, for a free webcast on my 2009 Mid-Year Economic Update. The webcast is being sponsored by Sage Software, a leading supplier of business management software and services to 5.8 million customers worldwide.

I plan to cover the following topics during this free event:

The consensus macroeconomic outlook for the rest of 2009 and beyond
The forecast for manufacturing, construction, and consumer spending based on the latest quarterly data
Sales and inventory trends at wholesale distribution companies
2009 sales forecasts for the 19 major wholesale distribution business sectors
The latest on the economic stimulus package

Although I won't have time for questions next week, I plan to give you a speed shot of economic insight. For more detailed data and forecasts, I suggest you check out one of my 19 Wholesale Distribution Economic Reports.

Stimulus Update + New Free Report

2009-05-19T07:07:00.008-05:00

Remember the economic stimulus bill? You know, the sprawling $787 billion American Recovery and Reinvestment Act (ARRA) of 2009 that most wholesale distribution executives expect to have no impact on their business?

Although the stimulus bill has dropped off most people's radar screen, the money flow is now starting. Keep an eye on the timing of outlays – 2010 could turn out to be an unexpectedly strong year for the economy given the likely spending pattern by the Federal and state governments.

For more details about the stimulus bill, I suggest that you download my free report called Economic Stimulus Opportunities for Wholesale Distributors, courtesy of IBM. This report is an abbreviated and annotated version of my March webcast.

As a reminder, my analyses show that wholesaler-distributors and their suppliers will benefit most from the money spent directly by the federal government and the money transferred to state governments for spending. Far too much money of the ARRA money is being spent on non-stimulative social programs. Nevertheless, I estimate that about $200 billion in direct and indirect spending – about one-quarter of the $787 billion total spend from 2009 to 2019 – will impact wholesale distribution companies.

The timeline for many appropriations to states requires half of the funds to be obligated – not spent – by September 2009. In other words, states must identify the specific uses and projects for the funds by the obligation timelines, even though the actual funds will not be spent by this deadline. Vice President Biden puts a positive spin on the progress in the first Quarterly Report To The President On Progress Implementing The American Recovery And Reinvestment Act Of 2009.

Check out the chart on page 5 of the Biden report. Most of the outlays will be hitting in 2010, just when the economy will likely be moving into recovery. (See 2009 Economic Growth and You.) The funds with the most relevance to wholesaler-distributors will spent in the 2010 to 2012 period. (See page 14 of Economic Stimulus Opportunities for Wholesale Distributors.)

Meanwhile, here's the latest bailout request:

(Hat tip to Greg Mankiw's blog.)

2009 Economic Growth and You

2009-04-27T21:15:00.008-05:00

The latest economic forecasts from the Wall Street Journal's monthly survey were released a few weeks ago. See Economists See a Rebound in September. An important question for many wholesale distribution executives is how the economic conditions affect their industry. Here's some data for you to ponder in your planning.

As the article notes:

Economists in the latest Wall Street Journal forecasting survey expect the recession to end in September, though most say it won't be until the second half of 2010 that the economy recovers enough to bring down unemployment.

The WSJ survey is very useful because it combines the perspectives of more than 50 different economists. I also like the fact that you can download a spreadsheet with the underlying forecasts so that you can follow your favorite (?) economist. Here are the average 2009 forecasts:

GDP (quarterly growth at annualized rate):

Q1: -5.0%
Q2: -1.8%
Q3: +0.4%
Q4: +1.6%

Unemployment Rate

June 2009: 9.0%
December 2009: 9.5%

You may be skeptical about the latest forecasts given the track record of this group in predicting the past six months. (I am.) Through September, most forecasters were expecting slow growth in 2009. The annual GDP forecast has dropped by 0.5% every month since then. (Whoops!) However, the consensus forecast has started to stabilize after six months of these massive downward revisions. The current (April) forecast is the same as last month's forecast.

To gauge the sensitivity of various wholesale distribution sectors to overall economic activity, I statistically correlated year-over-year growth in U.S. Gross Domestic Product (GDP) with growth in each of the nineteen wholesale distribution sectors. I used real, inflation-adjusted figures to compute growth rates. The results are presented in the table below. This table also appears in all of the 2009 Wholesale Distribution Economic Reports.

Industrial sectors are more closely tied to the overall economic cycle, while staples such as food and drugs have little relationship to U.S. GDP. Revenue growth in the chemical and oil and gas sectors have a negative correlation to GDP growth due in part to the unusually close relationship between underlying commodity prices and revenues.

Consider these relationships as a baseline that can be adjusted by industry-specific factors. The sector-by-sector models that I developed for the new Economic Reports rely on GDP components to develop more specific forecasts.

Highlights from the new 2009 Economic Reports

2009-04-13T11:13:00.011-05:00

My 2009 Wholesale Distribution Economic Reports for each of the 19 major industry sectors are now available for download from NAW's Institute for Distribution Excellence. Here's a look at the 2008 numbers and some thoughts on the 2009 outlook.

Total revenues of wholesale distributors grew by 8.4% to $4.5 trillion in 2008, marking another year of strong top-line performance. However, revenues increased by a more modest 0.5% after adjusting for inflation. Pembroke Consulting forecasts that (unadjusted) industry revenues will increase between 0.6% and 1.6% in 2009 as the recession and the decline in commodity prices hurts some of the largest sectors.

Here are direct links to the five best-selling reports from last year:

Growth varied widely between the 19 major sectors, each of which represents one of the 19 individual 2009 Reports that break the data into 112 sub-sectors. (Click the table below to enlarge it.) Note that the Census Bureau just did a major data revision going back to 2005, so this year's numbers may differ from previous reports.
Unfortunately, growth in many wholesale distribution sectors will be negative in 2009 as the U.S. economy suffers through its worst recession since at least 1981-1982. The consensus 2009 macro economic forecast calls for a deep recession lasting through mid-2009 with growth resuming only in late 2009 and early 2010. Our 2009 revenue forecasts for the wholesale distribution industry and its major sectors appear on page 5 of each report. The individual sector reports describe the sector-specific economic conditions and factors behind these quantitative forecasts.

In the meantime, please feel free to email me if you have any questions about the reports.

Today’s Recession in Perspective

2009-04-07T00:01:00.004-05:00

The Federal Reserve Bank of Minneapolis has put together a nifty site called The Recession in Perspective. It places today's recession into historical context versus the other 10 post-WWII recessions. You can graphically compare the length or depth of today's downturn to your favorite recession (1957? 1990?).

I really like this idea. It could be a useful planning tool for your company, especially if you loaded up some historical data from your own markets:

How bad is it?
Where are we in the cycle?
How does this downturn compare to others for our company?

I suspect that the Minneapolis site was originally intended to highlight that things have been worse. Alas, it now documents how bad things have gotten.

Recessions don't last forever. Back in early February, I predicted that we'd be seeing early indicators of recovery by mid-year and begin growing again (slowly) in late 2009 or 2010. So far, that outlook still seems accurate.

Stay tuned next week as I discuss my new 2009 Wholesale Distribution Economic Reports, which include my updated forecasts for all wholesale distribution sectors.

How Bad Is It?

The Fed site inspired me to create this chart, which I now use in executive presentations:

We will probably look back at today as "the bottom" – but it will be a long road back.Since peaking in December 2007, total non-farm payroll employment has dropped by 5.1 million jobs, with more than half of job losses coming within the last five months. That's a loss of 3.7% since the end of 2007, which makes the current recession worse than 1981 based on employment.

Employment in wholesale distribution is down 5.6% since the end of 2007, so the industry is declining more quickly than the overall economy. The biggest job losses in the U.S. economy have occurred in construction and manufacturing industries, which are core customer groups for wholesaler-distributors.

More on the Stimulus

Thanks to everyone who tuned in for my Economic Stimulus webcast. The feedback was extremely positive. Three sample comments:

"The webinar was very well done and useful. Thank you for sharing your analysis"
"Great job today on as wide ranging a subject matter as you can pick for a 90 minute webinar. Thanks for some good insights!"
"Great program with many 'put to use' tools…whosoever idea it was….great idea."

In case you missed it, you can order the DVD and slides from the MDM site.

How to Benefit from the Economic Stimulus

2009-03-23T12:05:00.006-05:00

I hope you will join me on Thursday for my live webcast The Economic Stimulus Package: Impacts & Opportunities for Distributors. The webcast is being sponsored in part by Infor.

I developed this webcast because I could not find a straightforward, practical resource about this complex and confusing legislation. I will not be defending the bill. Instead, I plan to give you with a non-partisan, fact-based look at where the stimulus money will be going -- beyond creating the nifty logo shown at right.

Here’s my short to-do list for taking advantage of the stimulus:

Attend the webcast so you can understand the facts – the good, the bad, and the ugly – about the stimulus bill. Visit the websites that I will identify in my presentation.
Get lists of specific “shovel ready” projects to branch managers and sales people. Start making personal contacts to validate information and begin the sales process.
Learn about the specific tax credits/incentives in the stimulus. Use these programs to develop marketing programs that will spur demand from your customers and/or your customer’s customers.

Let me give you a real-world example.

Last week, I interviewed a distribution executive running a 30+ branch company that has already built a stimulus action plan. He has looked at the actual lists of projects, broke it down by business unit and region (state/county/city), and then had his sales people work their contacts at municipalities and engineering firms to validate the list.

This effort is already paying off for his company. His team has built its own proprietary list of shovel-ready projects along with the estimated timing of funding the projects. As a bonus, his sales people have now identified new additional projects on the books that were not even on their radar screen.

The stimulus package is worse than it should have been, but better than you think it is. After you see my analysis, I think you’ll agree that distributors and their suppliers will be able to benefit from the direct and indirect spending by federal and state governments.

Nonetheless, the long-term impact on our country is still open to debate.

Finding Opportunities in the Stimulus

2009-03-09T00:01:00.002-05:00

The American Recovery and Reinvestment Act of 2009 – a.k.a. the stimulus bill – is not as bad as you think.

Seriously.

In preparation for my March 26 webcast The Economic Stimulus Package: Impacts & Opportunities for Distributors, I have been going over the 407 page bill, section by section. I have identified and classified 279 unique spending or tax items.

Yes, there is way too much money being spent on non-stimulative social programs. Nevertheless, I estimate that about $200 billion in direct and indirect spending – about one-quarter of the $787 billion total spend from 2009 to 2019 – will impact wholesale distribution companies. Almost three-quarters of this money will be spent by the end of 2011.

For example, $48.1 billion will be transferred to state and local governments for highway construction and transportation infrastructure, spread out by year as follows:

These highway funds are being distributed by formula to states and then sub-allocated within each state:

67% available for use in any area
30% sub-allocated by areas based on population size
3% for “mandatory transportation enhancements”

You can view the spending breakdown for yourself at the Federal Highway Administration’s website.

Your priority should be to align your business with the buyers and customer that will benefit from this demand creation.

On my March 26 webcast, I’ll share tactics that I’ve heard from wholesale distribution executives who are working on stimulus-related sales plans. I’ll also share more examples and details to help you (a) understand what’s actually in the bill, (b) anticipate the likely economic impact on wholesaler-distributors, and (b) pinpoint your sales and marketing opportunities.

In the meantime, spend some time on Recovery.gov, the government’s official site. It’s pretty light on content now, but will supposedly contain more detail over time.

Stimulus Skepticism

2009-03-03T08:51:00.011-05:00

Well, I crunched the numbers for my quick economic stimulus survey and the results are unambiguous. Most of you are very skeptical that the American Recovery and Reinvestment Act will deliver tangible benefits to your companies.

You can download the complete report (for free) here:

Stimulus Skepticism: The Impact of the Economic Stimulus on Business Strategies

High level results:

72 percent of executives at wholesale distribution, manufacturing, and technology companies expect the economic stimulus bill to have no impact on their company’s business strategies in 2009
A surprising twenty-one percent of executives claim that the economic stimulus now makes it less likely for their company to invest in growth-oriented strategies

Ouch. The negative effect on business confidence could mute the short-term benefits of the stimulus.

Personally, I’m surprised that so few companies are investing to capture their share of the stimulus spending. My analyses of the legislation suggest that many distributors could directly benefit from the spending provisions in the economic stimulus act.

So, I am partnering with Infor and Modern Distribution Management for a live webcast on March 26, 2009. Get more information here:

The Economic Stimulus Package:
Impacts & Opportunities for Distributors

Please feel free to email me if you have any questions.

P.S. It’s 3/3/09. Happy square root day!

Wholesale Distribution and the Economic Stimulus

2009-02-16T13:26:00.024-05:00

We are nearing official approval of H.R.1 American Recovery and Reinvestment Act of 2009, the 1,073-page, $787 billion “stimulus” bill. Peggy Noonan recently described the legislation as “a big, messy, largely off-point and philosophically chaotic piece of legislation.” Oink!

But put aside your personal, political feelings about the bill and ask yourself as a business person: WIIFM? (What’s In It For Me?)

As I see it, this bill will have a major impact on many wholesale distribution sectors. The estimated $787 billion cost, which will be incurred from 2009 through 2019, is split between two-thirds in direct spending and one-third in tax cuts.

Please take 5 minutes and let me know (anonymously) how the new bill might affect your company’s business plans in this brief, 2-page online survey:

Economic Stimulus Bill and Business Planning survey

I must get your response by midnight on Friday, February 20, in order to include your opinions. The survey results will be freely available and published on the Distribution Trends blog.

BTW, I am currently working on detailed analyses of the final bill and its implications for wholesaler-distributors, including a look at where the funds will be spent (by industry, geography, etc.) Stay tuned for more details soon.

Technology in Distribution report (free download)

2009-02-10T00:01:00.009-05:00

Last Fall, I partnered with Lawson Software to survey North American distribution companies about their technology spending and plans for 2009. The final report is now available for free download at the following link:

Technology in Distribution:
Trends and Challenges

There’s a lot of data for benchmarking on technology spending by application. Here are a few key findings:

The wholesaler-distributors in our sample spend one to two percent of their annual revenues on hardware and software per year. Almost 40 percent spend more than $250,000 per year, while the largest companies spending more than $1 million annually.
Technology spending by distributors will remain solid in 2009. A majority of companies plan to increase spending in 2009. Smaller distributors are investing to catch up to larger companies. Web-ordering will see the greatest increase in usage in 2009.
Surprisingly, many distributors lack the ability to track important customer-level performance metrics. Only four out of ten wholesaler-distributors can accurately track Operating Profit by Customer. One-third of wholesaler-distributors that offer fee-based services can’t even track the profitability of their services! (See chart below)

The survey was conducted last Fall, so the results reflect the impact of the credit crunch and weakened 2009 outlook.

Hope you enjoy! Please feel free to email me with any questions or comments on the study.

Strategies for Surviving the Recession

2009-02-03T00:01:00.001-05:00

I was in Washington last week for the National Association of Wholesaler-Distributors' 2009 Executive Summit. The overall mood was much more subdued than previous meetings given the economy and recent wholesale distribution sales trends.

But as always, the real value of the meeting came from the informal networking and idea sharing. There were hundreds of wholesale distribution executives at the event, so I took the opportunity to find out how some of the best are dealing with the recession.

As I see it, the winners are those companies with the will, the skill, and the till to survive this recession. Here are some specific ideas I heard from executives at the wholesaler-distributors that are growing faster (or shrinking more slowly) than competition.

Work Harder – Working at a wholesaler-distributor is fun when times are good and customers want to buy. But the never-ending stream of bad economic news and unpleasant headlines can make even your toughest employees feel discouraged. I spoke to many business owners who are recommitting themselves and their teams to good old-fashioned hard work. They are pushing the salesforce to make more calls, getting customer services to hustle a little harder, and trying to outrun competitors that show signs of weakness. The owner of an extremely successful wholesaler-distributor quoted Thomas Jefferson to me: “I’m a great believer in luck and I find the harder I work, the more I have of it.” His sector was down 25 percent last year, but his company’s sales only dropped by 5 percent.

Enforce profit discipline – The best wholesaler-distributors do not give up margin for no reason. I heard multiple examples of how investments in strategic pricing software allowed distributors to optimize margins, especially for slow-turning products. I also heard about customer profitability efforts that allowed managers to dig deeper than gross margins by linking operating costs to activities. One exec told me that a new cost system allowed his company to gain share by reducing price at a low cost-to-serve customer! If you have not done so already, I suggest that you buy Brent Grover’s book on customer profitability More to the Bottom Line: Customer Profitability Tools for Wholesaler-Distributors. The book is a superb resource for measuring customer profitability at a distribution company.

Stay connected – Dave Griffith of The Modern Group demonstrated how a wholesaler-distributor can use social media to build and maintain relationships with Connected Customers, a.k.a., the fourth trend in Facing the Forces of Change^®: Lead the Way in the Supply Chain. Dave gave a fascinating case study of how to use LinkedIn to drive business, gain access to new accounts, and better answer customer questions by tapping the network. Dave practices what he preaches – he recently “friended” me on Facebook. (Ask your kids if you don’t understand what that means.) On this blog, I have advised wholesaler-distributors to Be Found Online, pay attention to Online Customer Communities, and recognize the power of Leads Searching for You. The Future is Already Here is truer in today’s tough economic times than when I wrote it in September 2007.

Acquire distressed competitors – I heard many executives with strong balance sheets and good banking relationships getting ready to snap up smaller competitors. Banks are tightening lending standards and increasing spreads, reducing the availability of credit to firms and consumers throughout the economy. See my comments on pages 12 and 13 of my 2009 Economic Forecast for Wholesale Distribution report (now a free download). Many private, sole-proprietorships will be battling for survival over the next six months. Which of your competitors are being put on credit hold with suppliers? Which ones rely on the teetering commercial banks instead of the strong banking survivors? (By the way, take your banker to lunch this month and make sure that he or she understands your business.)

Keep Perspective – The economic outlook looks pretty grim right now. The housing-led slowdown of 2007 has now turned into a deep U.S. recession that will probably be comparable to the 1981-82 recession. Last Fall’s unprecedented financial and credit market volatility killed the prospects for a quick turnaround. Executives in their 40s and 50s have never had to lead a company during such a severe downturn. But the tide will turn again. Don’t panic. I predict that we’ll start seeing early indicators of recovery by mid-year and begin growing again (slowly) in late 2009 or 2010.

DO YOU HAVE THE SKILL, THE WILL, AND THE TILL?

In October, I facilitated a panel at the Erin Anderson B2B Research Conference at the Wharton School. You can read the transcript (or listen to the podcast) at Opportunities -- and Obstacles -- for the B2B Market in Tough Economic Times.

During our panel, Gary Lillien, a professor at Penn State’s business school, said that companies with the “the skill, the will, and the till” have the best chance of surviving the downturn and coming out with a better position on the other side.

The skill to manage their businesses well despite a crisis;
The will to invest when others are pulling back; and
The till (resources) to fund their strategies.

Give me a call or email me if you’d like to discuss how I can help you understand this volatile environment and think through your 2009 strategies. BTW, I am offering special “recession pricing” for these sessions to trade associations.

In the meantime, I'm grateful that my office has free Doritos today.

Free 2009 Economic Forecast Report!

2009-01-27T00:01:00.003-05:00

Good news!

IBM has kindly agreed to make my 2009 Economic Forecast for Wholesale Distribution report available as a free download. Just click the link below to get it. (Yes, you will have to register.)

The 2009 Economic Forecast
for Wholesale Distribution

Keep in mind that the overall economic outlook has darkened significantly since my report was released in November. Look at the projected 2009 GDP growth rate from the Wall Street Journal’s survey of economists, sorted by the month of the survey.

The average forecast swung from +1.9% to -0.3% between September 2008 and January 2009. As they say, economic predictions exist to make weather forecasts look accurate!

My forecasts for wholesale distribution have also come down, but the material in the report remains timely and relevant. Pay particular attention to my discussion of the credit crunch and my outlooks for key B2B markets in construction, manufacturing, and the retail supply chain. Feel free to email me with any questions.

BTW, IBM announced an upbeat outlook for 2009 based on its outsourcing and other services contracts. See IBM Bucks Tech Slump, Issues Rosy 2009 Outlook. At least someone is expecting a good year!

An Ugly Q4 for Wholesaler-Distributors

2009-01-19T06:05:00.008-05:00

Data from the fourth quarter of 2008 is starting to trickle in – and the news is horrible.

As you all probably know from personal experience, the U.S. economy dropped sharply beginning in September. The speed and depth of the decline surprised almost everyone – including me.

Below are the latest data for year-over-year revenue growth at U.S. wholesaler-distributors in October and November. (Click to enlarge the chart.) In addition to the demand shock, revenues also got hit hard by the popping of the commodity price bubble.

These data are not seasonally adjusted and are not adjusted for price changes (inflation or deflation). The lack of adjustment makes it easier to compare with your own companies. See the Wholesale Distribution Economic Reports for a definition of each sector.

Right now, the Wall Street Journal’s latest monthly survey of economists forecasts GDP to begin growing (on a quarter-over-quarter basis) by mid-2009. See Economists Are Divided on Best Mix of Stimulus from last Thursday.

Of course, the track record for this group of forecasters is not very encouraging. The average prediction for 2009 GDP growth in September 2008 was +1.9%, while January’s prediction for 2009 growth is -0.3% growth. Caveat lector.

Anyway, I’ll keep you updated on the economic trends for wholesaler-distributors throughout the year. Hopefully, we'll all start to feel better by 2010.

Holiday Cheer

2008-12-18T12:08:00.003-05:00

Well, here it is -- my 20^th (and final) post for 2008.

Thanks to everyone for your ongoing interest in my research and publications. I'll be back in 2009 with more fun stuff. In the meantime, here's a bit of multi-denominational holiday humor to brighten these bad economic times.

All Spinal Tap fans will surely enjoy Christmas with the Devil by Nigel and the gang! (Click below for a link to the video -- the song starts at the halfway point after a brief interview with the boys.) There’s someone up the chimney hole, and Satan is his name!

And for those of us celebrating the more minor festival of lights, can I interest you in Hanukkah? (my new favorite holiday song)

Happy New Year!!

A few words about the NAW Executive Summit

2008-12-08T20:58:00.005-05:00

I hope that you are planning to attend the 2009 NAW Executive Summit in January. I know that the economy is tough and many executives are cutting back on travel, but this is one meeting that I believe will pay for itself. I strongly recommend that you attend.

NAW’s meetings are unique because they bring together executives from all sectors of the wholesale distribution industry. Speaking from personal experience, I know that the various sectors have many more similarities than differences. So, it’s a great place to network and get ideas from peers at non-competing wholesaler-distributors. Check out the comments from recent attendees.

I’m also looking forward to hearing about the economic outlook from Alan Beaulieu of the Institute for Trend Research. Alan is a sophisticated economist with a down-to-earth manner. I’ll be curious to see how his forecast compares to my 2009 Economic Forecast webcast from November.

After last year’s meeting, I wrote about last year’s Executive Summit in Strategies for Surviving a Slowdown, which has turned out to be one of my most widely read and linked to posts on the Distribution Trends blog.

If you read this blog and run into me at the meeting, please let me know what you think about Distribution Trends. I’ll also welcome any ideas for 2009’s top post.

---

No, the picture above does not depict Washington DC weather in January. It's actually the summit of Mt. Everest.

Happy First Birthday, Economic Recession!

2008-12-01T06:05:00.002-05:00

Breaking news from 12 months ago – the U.S. recession officially began in December 2007.

The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) released a statement on Monday stating a Determination of the December 2007 Peak in Economic Activity.

By way of background, this committee is responsible for determining the start and end of a recession, which they define as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.”

The committee focused on payroll employment as a key indicator – consistent with the data shown in slide 5 of my 2009 Economic Forecast webcast in November:

As you can see in the chart, total non-farm employment has dropped by 1.2 million jobs since peaking in December 2007. Employment in the wholesale distribution industry is declining at a slightly faster rate than the overall economy, although regular readers will recognize that some wholesale distribution sectors have been expanding in 2008.

Job losses are widespread across most industry groups according to the most recent data (from October). Many core customer groups for wholesaler-distributors are cutting jobs:

Manufacturing employment declined by 90,000 jobs in October and is down by almost 500,000 jobs in 2008 through October.
Construction employment declined by 49,000 jobs in October, with job losses concentrated in residential construction. Since peaking in September 2006, employment in the construction industry has fallen by 663,000.

The overall U.S. unemployment rate rose to an unexpectedly high 6.5% in October – the highest rate in 15 years. The unemployment rate is forecast to hit 7.5% by the middle of 2009 according to the Wall Street Journal’s most recent survey of economists.

For more details on the economic situation and updated wholesale distribution data, order my 2009 Economic Forecast for Wholesale Distribution 30-page report and listen to the 90 minute audio recording of the November 13 event.

So, any ideas on what to get a recession for its first birthday?

My 2009 Economic Forecast for Wholesale Distribution

2008-11-10T18:18:00.001-05:00

Yikes! The latest economic data do not look good. More than half of the 19 major wholesale distribution sectors had negative (inflation-adjusted) year-over-year revenue growth through the third quarter of 2008. I also expect downward revisions to the Q3 GDP data that I discussed last week in Mostly Bad News in Q3 Snapshot of U.S. Economy.

The housing-led slowdown has now turned into a deep U.S. recession that will probably be comparable to the 1981-82 recession. Unprecedented financial and credit market volatility has reduced prospects for a quick turnaround. As I see it, 2009 will bring slow growth for both GDP and the wholesale distribution industry, although the economy will remain in a recession (negative growth) through at least the first half of 2009 and possibly longer.

So as we all turn our attention to the challenging year ahead, I want to remind you about my 2009 Economic Forecast for Wholesale Distribution webcast happening this Thursday, November 13, at 2:00 PM EST. You can sign-up online here.

I am working hard to make this a great event. During this webcast, I will help you to become familiar with just about every major macroeconomic issue that’s currently in the news. You will also get a 30+ page report with detailed, written commentary on every slide. It’s a great opportunity to bring your top managers together and strategize about 2009.

If you can’t attend next week, you’ll still get the report and be able to listen to an audio recording after the event.

Some of the topics that I’ll cover include:

U.S. Macro Economic Outlook, including GDP and Employment
The credit crunch and the bailout
Exports, Commodity Prices, and the Dollar
B2B Industry Outlook for Manufacturing, Construction, and Retail industries
Specific 2009 Forecasts for each of the 19 major wholesale distribution sectors

I will also be taking audience questions during this live event, so please feel free to email me in advance with any specific questions that you would like to me to address.

If you have already signed up, then I look forward to your participation.

Mostly Bad News in Q3 Snapshot of U.S. Economy

2008-11-03T06:05:00.002-05:00

Last week’s report on third quarter Gross Domestic Product (GDP) confirmed what many wholesaler-distributors are feeling – economic growth was anemic. As the Wall Street Journal noted, these data will affect the the policy options available to our new President. See Data Stoke Campaign Battle Over Economy.

The media focused on the headline GDP number, but there is some good news for wholesaler-distributors and their suppliers buried in the underlying components of GDP. I’ve updated the 2009 Forecast landing page with the agenda so you can see how these topics will fit into next Thursday’s webcast.

Two semi-bright spots:

Exports remain a bright spot for the U.S. economy, although the rate of growth slowed from the second quarter of 2008. Export growth will slow in 2009 due to a global slowdown. But economic growth remains robust in emerging economies, so exports will remain an ongoing bright spot for the U.S. economy – and for wholesaler-distributors that service and sell to domestic exporters.
Government spending also made a positive contributor to GDP. Much of the increase was attributed to Federal defense spending, which was up 18.1% at an annualized rate. Spending tends to highest in the last quarter of the government’s fiscal year as departments exhaust their budgets.

Now the (very) bad news:

The decline in consumer spending (durables and non-durables) was the sharpest quarterly drop since the second quarter of 1980.
Residential investment has declined by 43% since its peak in the fourth quarter of 2005, reflecting the aftermath of the housing bubble.
Business spending on equipment and software, which is about three-quarters of fixed nonresidential investment, declined for the third consecutive quarter due to credit conditions and overall economic uncertainty.
State and local government spending increased at an annualized rate of only 1.4%, reflecting the weakening financial situation of the states.

As a reminder, these data show the annualized percentage change from the previous quarter. In other words, the data show the percentage change from 2008:Q2 to 2008:Q3, multiplied by 4. These data give a good indication of the current rate of change but are not directly comparable to more common year-over-year growth rates.

Don’t forget to email me your questions for next week’s webcast. Sign-ups have been extraordinary, so make sure you stay up-to-date with your competitors by participating in this data-packed and insightful webcast.

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Speaking of snapshots, I’m sure all Americans will appreciate my wife’s excellent Halloween costume regardless of your political leanings. As you can see, she dressed up as … Tina Fey? And of course she is wearing McCain fine gold earrings from QVC!

Phillies win!! Economy doomed?

2008-10-30T07:43:00.004-05:00

Woo-hoooo!!!

The Philadelphia Phillies, the hometown team of your friendly neighborhood blogger, are World Series champions for the first time since 1980! There were loud celebrations in the streets of Philadelphia last night, but few overturned cars and no mass arrests.

Gosh, Adam, what could this mean for the U.S. economic outlook? Funny you should ask!

Two smart-aleck economists at Economy.com put together a sobering analysis called A World Series of Irrational Exuberance, concluding: “The data strongly suggest that a Philadelphia Phillies victory in the current World Series spells bad news for the economic cycle.” Check out this chart from their article:

Oh well. The parade is tomorrow afternoon right outside my office. Stop by if you are in the neighborhood.

Commodity Deflation is Closing the Growth Gap

2008-10-28T06:05:00.007-05:00

POP!

That’s the sound of the commodity price bubble popping. The implications for wholesaler-distributor’s revenue and profit growth will be significant in 2009.

If you have Facing the Forces of Change®: Lead the Way in the Supply Chain, now is the time to reread the section in Chapter Five on the risks of a slowdown in commodity prices.

I have been pointing out the distorting effect of the rapid rise in commodity prices for some time. In October 2006, Lawson Software published my initial research into the “growth gap” – the difference between actual revenue growth and inflation-adjusted revenue growth. (You can still download the paper Closing the Growth Gap in Wholesale Distribution from Lawson’s web site.) The 2008 Industry Growth Update shows the growth gap in the 19 major wholesale distribution sectors.

The chart below illustrates how high we went and how far we have already fallen. I have indexed the spot price for three common commodities: oil, copper, and corn.

Oil prices closed below $64 per barrel yesterday, a 17 month low. This drop will be good news for most wholesaler-distributors given the direct impact on transportation costs. However, distributors of oil-based products – such as plastics, chemical, or industrial lubricants – will find their revenues deflating quickly.

Copper closed at $1.675 per pound, a far cry from the nearly $4 per pound prices earlier this year. As I note in the 2008 Wholesale Distribution Economic Report on Hardware, Plumbing, and Heating Equipment and Supplies Wholesale Distributors, wholesalers of plumbing and HVAC/R products have seen their top-line revenues grow as upstream commodity prices flowed down the channel. The process of deflation for this sector will be especially painful.

Keep in mind that the dollar’s recent strength is also affecting commodity prices because most major commodities are denominated in dollars. As the dollar gets stronger versus other currencies, the local currency price of dollar-denominated commodities increases for foreign buyers. Demand for these commodities will further hurt demand and push down prices.

Tune in for my 2009 Economic Forecast for Wholesale Distribution live webcast on November 13. I'll explain the outlook for commodity and currency prices and discuss how wholesaler-distributors and their suppliers can get ready for a deflationary environment. Please feel free to email me any specific questions that you would like me to address during the webcast.

P.S. David Gordon and Allen Ray at Electrical Trends have some comments for electrical distributors here: The Impact of the Cliff-Diving Prices of Commodities.

How Economists See 2009

2008-10-21T06:05:00.000-05:00

The Wall Street Journal’s latest survey of 52 economists projects weak economic growth over the next few quarters. (See Economists Expect Crisis to Deepen.) Most economists expect GDP growth to be negative through the middle of next year followed by a slow recovery in the second-half of 2009. Inflation pressures will ease as the economy slows and the commodity bubble bursts. (I’ll have more to say about commodity prices next week.)

The survey was conducted in the first week of October, so the results are very timely. Here is the average annual forecast in graphical form.

(Note that these data are computed as the percentage growth in GDP from Q4 to Q4, which is equivalent to the average of the annualized quarter-to-quarter growth rate for each of the quarters throughout a year.)

We are exiting what may turn out to be the largest credit and asset bubble in history. Securitization allowed the housing bubble to spread throughout the financial system and ultimately infect the entire economy. This housing-led slowdown has now created unprecedented financial/credit market volatility, reducing prospects for a quick turnaround. Several dangerous worst-case scenarios are now apparent.

The residential construction boom will take years – not months – to unwind. You may recall that I highlighted the economy-wide dangers of the housing market last December (in Why You Should Care About the Mortgage Crisis). But few people, including me, imagined that our financial system would be teetering on the brink of chaos today. In fact, nearly all economists surveyed by the WSJ were expecting positive 2008:Q4 growth until the latest October survey.

Not all wholesale distribution sectors will suffer equally, as I pointed out last week in Get ready for a volatile 2009. So join me on November 13 for my 2009 Economic Forecast for Wholesale Distribution webcast and I’ll help you relate the macroeconomic forecast to your own wholesale distribution sector.

In the meantime, here's our bonus political question of the week: What supply house does Joe the Plumber use?

Get ready for a volatile 2009

2008-10-13T21:15:00.003-05:00

Given the news headlines, you might assume that business has been uniformly weak for wholesaler-distributors.

But in reality, revenue growth is varying more among the 19 major wholesale distribution sectors than anytime in recent memory. Check out annual growth rates below during the first eight months of 2008, ranked from best to worst. (See the 2008 Wholesale Distribution Economic Reports for a definition of each sector.)

Three major factors influence whether a wholesaler-distributor is operating in a faster or slower growing industry:

Higher commodity price inflation;
Sales to customers that are exporting from the U.S.; and
Limited direct or indirect exposure to residential housing.

So what will influence 2009's growth rate?

Tune in on November 13 for my 2009 Economic Forecast for Wholesale Distribution webcast. I’ll help you to understand today’s uncertain economy and get ready for 2009. I’ll also provide a specific, quantitative growth forecast for each of the 19 sectors listed above based on some proprietary econometric models that I've been developing.

This event is being underwritten in part by IBM Corporation and produced by Modern Distribution Management. An archived recording of the event will be available through the end of 2008 at http://www.mdm.com/2009forecast.

In the meantime, feel free to email me any questions about the current economic situation. I'll address them in a future post or during the webcast.

OUTLOOK 2009

2008-09-29T15:24:00.003-05:00

The NAW just announced the availability of OUTLOOK 2009: An Executive’s Companion to Facing the Forces of Change, a new report that gives an interim update on the key issues identified in Facing the Forces of Change®: Lead the Way in the Supply Chain.

I did not write OUTLOOK 2009; I am only the Executive Editor. But rather than just giving you a marketing pitch about the new book, I want to use the informality of this blog to explain why I pulled this collection together.

Earlier this year, I asked consultants and experts from around the industry to provide their point of view on the industry trends in the most recent Facing the Forces of Change trend study. Only two people turned me down. The other ten people were brave enough to take part in this project and subject their ideas to peer scrutiny. (See the full list here.)

Unlike the primary research report, the OUTLOOK is a collection of independent articles written by a group of well-known industry experts. I worked with each of the contributors to create a coherent book, but there is no attempt to force consensus or consistency of opinion. Each chapter gives you with the author’s own assessments and predictions along with specific action steps.

Sometimes, the contributors agree with my interpretation of a trend, and sometimes they don’t. I think that this diversity helps to make the industry stronger. The contributors to OUTLOOK 2009 are a group of people who regularly help me to learn and grow. I hope it will also help to make your company better prepared to manage through these unsettling economic times.

One final note: OUTLOOK 2009 looks at business and strategy trends, not economic trends or forecasts. If you want to know more about my view on the economy in 2009 and what it means for wholesaler-distributors, stay tuned next week for an exciting announcement.

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And to those readers for whom it is relevant: L'Shanah Tovah!

How Suppliers View Channel Data

2008-09-15T20:08:00.005-05:00

Hey, wholesale distribution executives! Do you want to understand how your suppliers feel about data sharing by their channel? Or perhaps figure out how you can profit from the demand-driven channels trend from Chapter Two of Facing the Forces of Change®: Lead the Way in the Supply Chain?

If so, then check out my new research study, which you can download for free after registering with InfoNow, the report’s sponsor and a leading channel data management (CDM) company. Here’s the link:

A Cross Industry Study of Channel Data Automation

In case you didn’t know, Channel Data Management (CDM) describes the processes by which manufacturers collect point-of-sale (POS) transaction and inventory information from their distribution network, cleanse and standardize the data, and then use the results to make better decisions.

I looked at the channel data management practices of 124 technology, manufacturing and pharmaceutical companies that sell through indirect channels such as wholesale distribution. The study provides a complimentary perspective to Facing the Forces of Change® regarding data sharing between wholesaler-distributors and their suppliers.

According to the manufacturing executives in the study, a major challenge associated with channel data comes from their company’s ability to gather and use the information effectively. However, the frequency of these problems varies significantly based on the level of automation used by a manufacturer for gathering and reporting data from wholesalers, retailers, and other resellers.

For example, more automated processes for handling distribution channel data are closely associated with fewer problems in the quality of channel data reporting, such as:

Less frequent discrepancies between a manufacturer’s internal sales data and the data collected from their distributors.
Less time spent by a manufacturer validating or auditing sales data submitted by their distributors.

So, just as customer relationship management changed the landscape for companies that sell direct, I expect CDM will one day revolutionize how a manufacturer manages sales through indirect channel partners such as wholesaler-distributors.

Here’s a strategic question for wholesale distribution executives: How can you use knowledge of CDM to build a new service for your suppliers or identify a new compensation model for your data?