Distributors Shed COVID but Prepare for Other Potential Crises in 2022-23

Last year’s momentum carried over into a strong first half of 2022 for many distributors. But a mishmash of headwinds and tailwinds reveal uncertainties for the rest of the year and into 2023, economist Brian Lewandowski and MDM’s Tom Gale discuss in a new webcast.
Last year’s momentum carried over into a strong first half of 2022 for many distributors. But a mishmash of headwinds and tailwinds reveal uncertainties for the rest of the year and into 2023, economist Brian Lewandowski and MDM’s Tom Gale discuss in a new webcast.

As the severity of business impacts from the COVID-19 pandemic has waned, most U.S. market sectors and distribution verticals have seized the economic opportunity and have thrived during the first half of 2022. However, with record inflation, ongoing supply chain issues and labor worries, the next six to 12 months will likely be enveloped in uncertainty for many distributors and manufacturers.

That’s according to University of Colorado Leeds School of Business Executive Director Brian Lewandowski, who chatted with MDM CEO Tom Gale during a recent webcast. While many sectors have recovered to pre-pandemic levels, there are myriad factors that may determine whether distributors see continued growth.

“COVID-19, of course, has been top-of-mind for the last two-and-a-half years almost. And for good reason,” Lewandowski says. “It’s been the great disrupter. It’s been disruptive to families, to loved ones, to companies. It has been disruptive to industries and business operations and disruptive for organizational behavior, when you think about out where we’re working from and the technology that we’re using. It has been disruptive to supply chains. But now it feels that we’re sort of moving past COVID-19. The hospitalizations are well below peak, the COVID cases are well below peak, the deaths are down. That’s really good news, but it really segues us in from one crisis to the next crisis.”

Lewandowski called MDM’s 2022 Mid-Year Economic Update “a presentation of economic musings during a period of uncertainty.” He says it’s not really clear what shape the industry will be in a year from now, due in large part to a mix of headwinds and tailwinds that affect the industry’s growth overall.

The headwinds (positives), Lewandowski says, include job growth, job openings, wage growth, consumer consumption, industry investments, recent vaccination rollouts and technology advancements. The potential tailwinds, however, include the Ukraine conflict, continued record inflation, supply chain disruptions, worker shortages, policies from the Fed, labor participation issues, energy prices and questions over population growth.

Lewandowski says jobs numbers overall will likely return to a pre-pandemic peak sometime this year, but wholesale trade remains down about 57,000 jobs. “So, there’s still plenty of room for recovery across these industries,” he says. “Geographically the recovery has been really fragmented.” He adds there’s “a lot of employment pain still across the country when we take a look at this industry.”

And sectors are seeing wage growth, but it varies across industries, Lewandowski says: “There’s been some interesting sub storylines in their time. One of them is that some of our highest-tech, highest-skilled industries are seeing strong wage growth. But we’re also seeing really strong wage growth on the bottom end of those pay runs. So, think about those industries that tend to be lower-skilled; they tend to be closer to minimum-wage jobs. That might be restaurants, or retail, or hotel jobs, that tourism sector of the economy. That’s where there’s some of the greatest competition for workers. That’s where we’re seeing some minimum-wage mandates across the country. There’s some upward pressure on the floor, the wage floor, as well as some select sectors at the top.”

Despite gloomy projections based on inflation and continued supply headaches, wholesale distribution is likely to keep growing through 2022 — but the industry is likely to slow in 2023. “So, we’re thinking about a scenario where the economy performs a little bit better than we expect, and an economy where things deteriorate a little bit faster than what we expect,” Lewandowski predicts. “And, so, you know, we are halfway into 2022. Now, we have wholesale distribution revenue for at least the first three months of the year. But we’re still pretty bullish for this year; we expect about 15% growth for the industry at large in 2022. But we expect much slower growth in 2023. And in that pessimistic scenario, we actually expect it’s a recession scenario. So, we expect wholesale distribution to actually shrink a little bit in 2023.”

View the webcast in its entirety on-demand here.

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