Product sales volume was down for the first time in over two years and pricing continued to moderate as the wholesale distribution industry saw further deceleration in revenue growth during 2023’s January-March period, according to the First Quarter Baird-MDM Industrial Distribution Survey. The survey polled and collected commentary from more than 500 wholesale distribution executives nationwide.
Overall, distributors posted an annualized growth rate of just 1.9% in 1Q23, down significantly from 4Q22’s 4.2% and 160 basis points short of Baird’s expectations. Polled distributors described 1Q23 as “choppy” and “uneven,” with the survey figures supporting that assessment: While the industry saw stronger revenue growth in the first half of the quarter, there was a noticeable “softening” in sales, as one executive described it, to finish 1Q. Publicly-traded distributors across all verticals also reported that volume slowed throughout the quarter.
As was the case in 4Q22, the growth rate decline in 1Q23 was consistent with the Institute for Supply Management’s Purchasing Managers Index (ISM PMI), which in March fell to 46.3, the index’s lowest reading since May 2020 at the height of the COVID-19 pandemic. The ISM PMI has been on the decline since last summer, which is around the time distributors saw their revenue growth begin to decelerate: the industry’s annualized growth rate fell from 9.3% in 3Q22 to 4.2% in 4Q22, and tumbled even further to 1.9% in 1Q23.
With the annualized growth rate falling short of expectations for a second straight quarter, Baird’s forecast for 2023 has once again taken a hit, but still calls for growth. As noted in our 3Q and 4Q 2022 MarketPulse reports, the industry has been riding high the past two years on benefits from pricing, and distributors are now realizing decelerated growth as pricing has started to moderate. However, when weakened pricing is paired with softening volume and other red flags that have arisen, it could be a matter of when, not if, a more pronounced slowdown will hit the industry.