Following a strong year of revenue growth in 2018 for distributors, MDM’s Economic Benchmarks for Wholesale Distribution (EBWD) predicts the distribution industry will have a 2.4% increase in revenues for 2019, notably lower than the 6.8% growth in 2018. However, the forecast for 2020 is 4.4%.
“We saw pretty strong growth in 2016, 2017 and 2018, but now we see some slowing,” said MDM research partner Brian Lewandowski, associate director of the business research division of the University of Colorado Boulder's Leeds School of Business and lead author of EBWD.
In a recent webcast, Lewandowski reviewed the latest EBWD research on the wholesale distribution industry's market sectors and explained several major economic trends affecting distribution channels.
“Employment growth is up. Wages are up. We’ve also seen an increase in household wealth. We’re at record levels,” Lewandowski said. In addition, looking at consumer confidence, “we’re at the highest levels since 1999 or 2000, which I think is pretty notable,” he added.
The real GDP of the United States increased 2.1% in the second quarter of this year, compared to 2.9% for 2018 as a whole, according to the U.S. Bureau of Economic Analysis. “We think we are on a growing, but slowing track,” Lewandowski said. “We expect GDP growth to continue to stand, just at a slower rate, in 2019 and 2020.”
Some concerns remain around the manufacturing industry. “The manufacturing sector is weakening a little bit,” Lewandowski noted. “The decrease is partially due to inflated inventory. That’s something that can be worked through. Trade is a big concern. We’re still pointing to strong production, but it’s slightly less activity on the capacity utilization side.”
Job growth is strong across the nation, except in retail trade, where there’s a lot of competition with e-commerce. E-commerce sales are showing double-digit growth, reaching 10% of the market share this year.
Risk and Uncertainty
The economic risks to look out for this year, Lewandowski said, include:
- Disparate employment rates among states,
- Declining interest rate spread,
- Rise in loan delinquency rates (especially in credit cards and auto loans),
- Growing federal budget deficit, and
- Trade wars and tariffs.
These risks are part of an underlying sense of economic and political uncertainty.
Lewandowski explained, “Last year, we saw a lot of uncertain events — some that caused a lot of volatility in the marketplace, others that we think ended up boosting economic growth and GDP growth in general, such as the Tax Cuts and Jobs Act. There’s no shortage of uncertainty now — things like trade and tariffs and Brexit and European growth and growth in China and energy crisis and Federal Reserve Board policy.”
He added, “We see a narrative coming out of Washington that can boost the market one day and decrease the market the following day. It speaks to the uncertainty that we have. A lot of that uncertainty comes around trade. That’s impacting a lot of the prices within your individual sectors. We’re not sure exactly how that will get fleshed out, but we are optimistic that there can be some sort of resolution to trade policy, particularly with China, within the next six months.”
Listen to Lewandowski’s webcast, The 2019 Mid-Year Economic Update, in its entirety here.
As always, MDM welcomes your comments below or at [email protected].