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Recovery is Different This Time Around

Recovery is Different This Time Around

Distributors at NAW meeting still hopeful but cautious

January 27, 2011

While economist Brian Wesbury, chief economist for First Trust Advisors LP, warns business executives about economic hypochondria and missing the V-shaped recovery taking place, not all wholesale distribution executives are ready to jump for joy. Wesbury presented a 2011-2012 economic forecast yesterday at the National Association of Wholesaler-Distributors annual executive summit in Washington D.C.

Case in point: Julia Klein, president and CEO of C.H. Briggs, a specialty hardware distributor serving mid-Atlantic states. In a panel discussion, Klein wondered aloud whether she missed something the past three years, referencing the dramatic downturn in residential construction markets. Her comments resonated with many in the audience. While most attendees at the NAW meeting liked the economist’s message of optimism, there was more than a little skepticism. Wesbury’s thesis was that talk of a “New Normal” is overstated – consumer behavior has bounced back based on six straight quarters of GDP growth.  This rebound is no different than past rebounds – the economy goes, then it goes down, then it goes back up. Economics 101, from Wesbury’s viewpoint.

Industrial and other markets finished 2010 very strong. Grainger’s sales increased 15% in 2010. On a broad-brush basis, many privately-held distributors seemed to report increases of 5-10 percent for the first half of 2010, and in the 15-20+ percent increase range this last half. The strength of the last quarter surprised many.

The consensus feedback I came away with from the NAW Summit is this time is in fact different. While we have a short memory as a nation and like to spend, not save, the number of jobs lost in this last recession impacted this country’s perspective more than since the 1930s. While certain aspects of consumption have rebounded, the easy-money mortgage bubble that fueled residential construction is done. There is no replacement in sight. Customers in all sectors are operating more leanly.

Some distributors are dealing with the changes that have taken place by segmenting their customers more carefully to understand and discover growth opportunity. With the new Facing the Forces of Change report the focus of this meeting, there were some great examples of ways wholesale distribution companies are resetting expectations and strategies for growth in 2011.

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