As of this blog post, we’re in the midst of the latest quarterly earnings reporting period for publicly-traded industrial distributors and suppliers, and the figures so far have illustrated an April-June period that saw continued considerable year-over-year sales and profit gains.

This comes as the biggest topic of discussion in the U.S. manufacturing sector seems to be the economy and a pending downturn that many economists expect to result in recession beginning the fourth quarter of this year or 1Q 2023.

But if you listen and read the comments shared so far in this reporting cycle by industrial distribution and supplier executives, you’d have a hard time pinpointing any vibes of real concern.

Of course, it’s part of the job of CEOs and CFOs to sound optimistic at all times when talking to earnings analysts and shareholders, but with all the noise about headwinds of interest rates and general economic slowdown that will drag on end-user demand, it’s still been refreshing to hear that these industrial suppliers expect to continue to post strong growth through at least the end of this year.

“I suspect for most people listening to this call, the reason you’re looking at our earnings release today and looking at participating in this call is you want to see what breadcrumbs might come out of it as far as where the economy is going,” Fastenal CEO Dan Florness said during his company’s July 13 earnings call.

Florness, though, quipped that Fastenal’s future visibility is “about 8 hours” and that most of any visibility comes from what the company hears from customers, though the anecdotes are visible in trends of the business. Those trends include Florness’ remarks that demand is generally healthy, while there were some signs of softening in May and June.

That “softening” for Fastenal deserves context. The company had May average daily sales growth of 17.6% year-over-year, followed by 16.0% growth in June. Indeed, those months are down from the 20.3% growth recent peak seen in April, but June’s daily sales were still on-par sequentially with May (up 0.2%, actually) and were up a whopping 29.2% vs. June 2019.

“That softening was not particularly deep,” Fastenal CFO Holden Lewis said on the call. “And if the level of economic activity that we experienced exiting the second quarter were sustained, we feel good about the rest of the year. Nor was the softening that we experienced particularly broad. We experienced it largely in areas that directly touch consumers as well as construction while our core capital goods and commodity-related markets remain strong with healthy backlogs.”

Fastenal was one of the best industrial performers during 2020’s sharp industrial downturn, when factories and construction sites completely shut down en masse in response to the pandemic’s outbreak. The company managed to keep sales growing on strength of its ability to procure PPE supplies rapidly, sending its safety sales skyrocketing that spring while sales of core fasteners and industrial products went south.

It’s those backlogs that continue to give the company confidence in the demand market going forward.

“When I talk to our regional leaders, when I talk to our national comp sales leaders and I get the tone of what they are seeing from their customers, I don’t think there’s a customer they talk to that doesn’t have as strong a backlog as they’ve ever had in their business,” Florness said after a handful of questions looking for forward-looking commentary. “When I talk to our manufacturing customer base and our construction customer base, the proverbial canary in the coal mine is projects don’t get canceled, but they get delayed when things get softer.”

And it’s not just Fastenal voicing optimism amid economic red flags. In MSC Industrial Supply’s 3Q earnings call on June 29, president and CEO Erik Gershwind provided a similar sentiment, while acknowledging existing and pending headwinds.

“Order levels, backlogs and overall activity remain strong,” he said. “Most segments of the industrial economy are still seeing robust demand patterns as evidenced by the Industrial Production index. That said, many of our customers are feeling the effects of extreme inflation in all lines of their income statement, along with the ongoing labor and supply shortages, resulting in the need for productivity and process improvement.

“And while all of this continues to put pressure on our customers, we are not seeing the evidence of an imminent recession that is suggested by the headlines. As a result, we remain in growth mode.”

MRC Global likewise raised its 2022 expectations for the rest of the year after a strong first half and positive outlook for each of the company’s end markets.

MSC’s 3Q ended May 28, and even with its earnings call nearly a month passed, the company said any possible downturn would lead to MSC strategically investing in the business, just as it has in past downturns.

“Let me reiterate that we currently do not see signs of a slowdown, but if a slowdown were to occur, we are well positioned to weather the storm,” CFO Kristen Actis-Grande said on the call. “We have a lot of positive momentum heading into 2023 that we feel really good about allowing us to capture share, regardless of what happens to the market.”

That industrial supply market confidence is further exemplified by Fastenal acknowledging it didn’t enact any broad price increases in 2Q, while previous pricing actions enabled it to maintain flat gross margin despite added inflation. Fastenal added that it would pass through additional cost pressures if needed in 3Q, but doesn’t have set plans for any, and they wouldn’t be aggressive even if needed, barring a major shift in inflation. All in all, Fastenal may view industrial inflation as already peaked.

Florness looked to put market concern by noting there’s still a lot of pent-up demand because manufacturers have projects waiting to be finished — waiting for components to arrive.

The Fastenal duo also touched on issues of supply chain backlog and labor shortages that continue, but have become more predictable. Challenges with availability persist for the Winona, Minnesota-based company, but it and its customers are managing them more effectively. Labor market tensions have eased some — evidenced by Fastenal’s strong full-time-equivalent additions in 2Q.

“So, disruptions persist, but the chaos surrounding them has receded, resulting in a more predictable business environment,” Lewis said.

Tougher Comps in 3Q

While these companies have voiced optimism and expectations for a strong July-September period, tougher comparisons may not fully reflect those sentiments when 3Q earnings are shared this fall. That’s because, unlike 1Q and 2Q 2022 that had favorable comparisons against the first half of 2021 when industrial demand was still rebounding from the pandemic’s shutdowns, 3Q 2022 will face year-over-year comparisons against a very strong 3Q 2021. So, while sales and profit gains figure to still be strong for the current quarter, they likely won’t be at the formidable clip seen in the past few quarters.

“One change you will see is as we run into Q3, we’re going to run against tougher comps,” Lewis acknowledged. “And so I do expect that the percentage growth related to price increases will moderate from where we were in Q2.”