The 2020 Mid-Year Economic Update_long

Commentary: The Real Impact of 2009

Last week produced more economic bad news: chain store and vehicle sales down, a labor market in self-reinforcing decline. The data is dismal. Our lead article in this issue on construction markets indicates that many expect a tough year ahead before improvement. The severity holds parallels to what industrial distributors went through eight years ago.
 
So this is where I have to say the sky is not falling. The feedback we are hearing, including at the recent Power Transmission Distributors Association meeting, doesn't match the TV chatter regarding the economy.
 
The general consensus across industrial sectors is this: Most distributors and manufacturers expect a flat to 5 percent decline in sales for 2009. The only sector falling off a cliff so far is ...

Last week produced more economic bad news: chain store and vehicle sales down, a labor market in self-reinforcing decline. The data is dismal. Our lead article in this issue on construction markets indicates that many expect a tough year ahead before improvement. The severity holds parallels to what industrial distributors went through eight years ago.
 
So this is where I have to say the sky is not falling. The feedback we are hearing, including at the recent Power Transmission Distributors Association meeting, doesn’t match the TV chatter regarding the economy.
 
The general consensus across industrial sectors is this: Most distributors and manufacturers expect a flat to 5 percent decline in sales for 2009. The only sector falling off a cliff so far is automotive. Otherwise, the third quarter held up surprisingly well. Many manufacturers and distributors are still growing, but at a slower rate. Everyone is bracing for this fourth quarter to be tough, particularly as numbers the past few weeks indicate consumers are slamming on the brakes.
 
I hold some hope for 2009 to not be as severe as the national media would lead us to believe. Industrial markets are healthier in North America than eight years ago when manufacturing was fleeing this country. The leading distributors emerged from the last recession and changed the structure of their businesses from purely sales-driven to a more flexible and profitability-focused model. Export and energy markets have created more diversity in the customer base than eight years ago. There is an increasing level of activity in regional manufacturing, with first indicators of a trend in production returning from across the Pacific Ocean.
 
There is a clear difference between being in denial about external events and finding opportunity in times of difficulty. Those who choose not to participate in the current downturn by continuing to do what they have been are in danger. Those who adjust to this part of the business cycle know this is the time to strengthen your position and find where to build market share. It’s important to have a well-thought strategy to respond quickly. That is much more productive right now than getting whiplash watching the daily markets and TV pundits.
 
Webcast note: For the best data and insight on wholesale distribution sectors, be sure to attend this Thursday’s 2009 Economic Forecast for Wholesale Distribution with Adam Fein, Ph.D., and sponsored by IBM. Sign up for the event on our Web site at www.mdm.com/conferences/forecast2009.html.

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