The 2020 Mid-Year Economic Update_long

More Signs of Economic Recovery, but Uphill Climb Remains

August has brought some more good news to the U.S. economy in general and distribution in general based on the latest round of data reports showing continued momentum, but the industry has plenty of work yet to complete.
Economic reports for August

Good news came to wholesale distribution in the form of some upbeat economic reports during the first few weeks of August. But while this latest round of green shoots might be welcome, there is still a tough road to recovery for many companies and the industry as a whole.

Let’s look at some of the recent news:

The most recent Pandemic Revenue Index from Indian River Consulting Group, for the workweek of Aug. 9 to Aug. 14, indicated a 0.5% increase compared with the same week a year ago. That represents sales growth in two of the last three weeks and the first mid-month sales increase since March — previous sales increases all corresponded with the last week of a month — according to Mike Emerson, IRCG Partner.

In a huge boost to building materials distributors, the U.S. Census Bureau last week reported growth for residential construction in July, including bumps in privately owned housing units authorized by building permits, single-family authorizations, privately owned housing starts and privately owned housing completions.

Total industrial production rose 3% in July, following a 5.7% increase in June, according to the Industrial Production and Capacity Utilization Report from the Federal Reserve. However, the index in July was 8.4% below its pre-pandemic February level. Also in the report, the Fed said manufacturing output continued to improve in July, rising 3.4%.

In a move that was expected, thanks to the seasonality of HVACR distributors’ business cycles, Heating, Air-conditioning & Refrigeration Distributors International (HARDI) released its monthly TRENDS report, showing the average sales performance by HARDI distributors was an increase of 24.3% during June 2020.

Other good news came from the monthly wholesale trade report and the Manufacturing ISM Report on Business.

Also, a handful of publicly traded distributors (or companies that compete with distributors in certain categories) in the last few weeks posted decent to strong second quarters (or July sales months), including Alibaba Group Holding Ltd., Lowes Cos. Inc., 3M and Fastenal Co.

Less Bad News to Share

In our last roundup of economic news, the bad almost equaled the good. Not the case this time, with just a few major indices indicating year-over-year declines.

For example, the U.S. Census Bureau announced that the combined value of distributive trade sales and manufacturers’ shipments for June — adjusted for seasonal and trading-day differences but not for price changes — was estimated at $1.4 trillion. This was down 4.3% from June 2019 but up 8.4% from the previous month of May. Manufacturers’ and trade inventories for June were down year-over-year and from the previous month.

The seasonally adjusted Fastener Distributor Index (FDI) for July was 54.6, consistent with improving momentum (above 50 reading) but at a slower rate versus the improvement seen in June (FDI decreased month-over-month), according to the latest analysis from Baird, FCH Sourcing Network and the Institute for Supply Management.

While the North American Building Material Distribution Association (NBMDA) reported 2Q sales growth was down year-over-year by 6.8%, association members are forecasting 10% growth in the third quarter and they expect the 2020 performance to be 5.2% better than they projected in the first quarter.

And the public companies to report moderate to steep declines in 2Q include WESCO International Inc., Applied Industrial Technologies, MSC Industrial Supply Co., Avnet Inc., Beacon Roofing Supply, DXP Enterprises Inc., Veritiv Corp. and NOW Inc.

Stay tuned to mdm.com for the latest economic analysis. And join us for Sales GPS 2020 on September 1-2, 2020, to learn how to build a team-based sales function that integrates outside specialists with inside sales, marketing, analytics and a customer-centric multichannel model — all to help your company cope with the new distribution landscape.

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