Over the last four months, COVID-19 swiftly carved a destructive path through the U.S. economy, and the return to growth will be a slog for many industries — including wholesale distribution.
That was the message from Brian Lewandowski — executive director, business research division, University of Colorado Boulder’s Leeds School of Business — on the recent MDM Webcast, The 2020 Mid-Year Economic Update.
Lewandowski, who was joined on the webcast by host Tom Gale, CEO of MDM, and Ranga Bodla of webcast sponsor NetSuite, outlined the ways that the coronavirus has ravaged economic activity more ferociously than even the Great Recession, which lasted 18 months, from December 2007 to June 2009.
The Great Recession, in fact, is the closest comparison we have to what’s happening right now across the U.S. in terms of overall economic and job loss.
“The Great Recession destroyed over $4 trillion in economic activity and lowered the trajectory of potential U.S. GDP, taking a full eight years to return to potential,” Lewandowski said on the webcast.
The impact of the coronavirus crisis on the U.S. economy is still unfolding, of course. But one certainty is that distribution hasn’t been hit as hard as other industries. True, wholesale distribution revenues fell sharply in 2Q, down 9.8% in the period, but this was 1.5% better than forecasted heading into the quarter, according to the most recent MDM-Baird Distribution survey.
Only two sectors — landscape supplies and safety — posted revenue growth in the quarter at 3.5% and 0.6%, respectively. Even facilities maintenance/JanSan, which was considered one of the standout categories once the pandemic took hold, dipped into the red at -4.4% in 2Q.
Unemployment hits Unprecedented Levels
Job loss has been staggering in the U.S. as many businesses were forced to shutter in light of state and local governments issuing stay-at-home orders for residents while also declaring only certain companies “essential.”
Fortunately for distribution, many companies fell into the essential category and were able to stay open. Numerous companies pivoted to selling personal protection equipment (PPE) and JanSan supplies, but the industry still saw job losses mount.
Still, a comparison with the Great Recession is in order. According to Lewandowski, from peak to trough, the U.S. lost 8.7 million jobs, or 6.3% of the workforce, during that time. The employment recovery from the coronavirus is likely to be much longer.
“Mind you, it took 21 months to record the 8.7 million job loss,” Lewandowski said. “In this (COVID-19) cycle, the U.S. lost 22.2 million jobs, or 15.5% of employment, in a matter of just two months.”
The question now is all about recovery, and Lewandowski spent some time on the webcast mapping the different scenarios that could play out in the coming quarters and years. But, he cautioned, there will be a “different recovery for each one of the industries” depending on end markets and other factors, he said.
For the third quarter, the likely forecast for wholesale distribution revenue is -14.1%, but if things break the right way — for example, if the coronavirus curve flattens more rapidly than expected because a vaccine comes to market — then an optimistic outcome would be -12.5%. However, the converse could also occur — shelter-in-place orders are extended and cases worsen — so the pessimistic forecast for wholesale distribution revenue in 3Q is -17.4%.
For the fourth quarter, the baseline scenario for wholesale distribution revenue is -12%, while the optimistic scenario is -8.9% and the pessimistic scenario is -18.2%.
For full-year 2020, the baseline scenario for wholesale distribution revenue is -11.1%, while the optimistic scenario is -9.9% and the pessimistic scenario is -13.5%. The first year of industry-wide growth is expected in 2021. The baseline scenario for wholesale distribution revenue is 2.6% next year, while the optimistic scenario is 7.1% and the pessimistic scenario is -8.5%.
For much more on how distribution is faring, click here to listen to the entire webcast. MDM has more coverage on both the state of distribution in 2020 and the forecast for the entire wholesale trade industry as well as individual sectors in the July 25 issue of MDM Premium, online now.