The MDM Monthly Wholesale Forecast was little changed in January as the overall economic outlook for the wholesale distribution industry remains strong for 2022. These mostly positive indicators are happening partially because of inflation rates at 40-year highs.
“Last month we were at 9.9% for the 2022 overall forecast, and now we’re at 10.9%,” says Brian Lewandowski, executive director of the Business Research Division at the Leeds School of Business at the University of Colorado. “So, things have definitely improved in terms of the overall forecast. But the thing to remember here is these are nominal terms, meaning that it’s not adjusted for inflation. I would presume that a lot of that growth in industry revenue, that one percentage point change in growth, has to do with increased price expectations, as well.”
This aligns with other positive news released Thursday, namely that the real gross domestic product for the fourth quarter of 2021 was revised upward by a tenth of a percentage point to 7% growth. That is the fastest economic growth since 1984.
For the individual distribution sectors, there is a decent amount of volatility. An example is the wildly fluctuating oil and gas products sector, which has more changes in price than any other sector. The estimates for 2021 growth in oil and gas are a whopping 75.5%, with only 14% growth in 2022, and an expected contraction in 2023 and 2024. These data do not factor in the Russian invasion of Ukraine and the dramatic increase in oil prices this week.
Another industry sector that is susceptible to price swings is agricultural products, which is forecast to have grown 34.4% in 2021 and 19.3% in 2022. Every distribution sector is expected to grow in 2022 except for miscellaneous durable goods, which grew 32.7% in 2021, according to forecasts, but is predicted to shrink 0.3 percent in 2022.
Wholesale distribution inventory is an all-time high, according to MDM analysis. With a trend of 30 years, inventory is quadruple in value than what it was in 1993. Year-over-year wholesale distribution inventory change was 18%.
Another major indicator to be aware of is the employment situation. Year-over-year growth as of January 2022 is 2.8% in the wholesale distribution industry. This contrasts with two sectors hit hard by the pandemic — arts, entertainment and recreation (26% growth YoY) and hotels and restaurants (17% YoY growth) — that are now recovering. While wholesale distribution growth may seem minor compared to these leisure sectors, 2.8% is quite robust, says Lewandowski.
“There’s also been sort of a decoupling of that relationship between employment growth and sales growth, where we’re measuring greater productivity in this current era. Maybe it’s because wholesalers can’t find enough workers to fill all the jobs,” he says.
While the economy is extremely volatile now, Lewandowski believes that inflation may be peaking. “I think that we should be cresting. And I wouldn’t be surprised if we see lower inflation, even next month, meaning that it is increasing at a decreasing rate. We were just over 7% this last month. And I think we’ll be at a slowing rate going forward.” Lewandowski added, however, that the situation in Ukraine could delay this.