With the election of Donald Trump, business as usual in Washington, DC, has been disrupted – as promised – but how will it affect distributors? NAW’s Executive Summit, held in DC shortly after the inauguration, could not have provided a timelier forum for gaining insight into that question from several perspectives.
Directional trending in national indices bodes well for many distribution sectors, as confirmed by a bullish economic outlook from ITR economist Alan Beaulieu. Industrial production, GDP, major industrial sectors and nonresidential construction should perform well this year, he said. Consumer confidence is at a record level. Interest rates, while rising, are still near historic lows. Employment and wages are increasing.
For the past two years, the worst-hit distribution sectors have been those with large exposure into energy markets. Suppliers into oil and gas markets stand to benefit from both an improving economy and changes in policy. Policy favorable to oil and gas exploration is expected to support continued recovery. Less clear is whether a shift in policy on coal mining will overcome market forces of increased oil and gas supplies and competitive pricing.
Two areas of Trump policy – immigration and international trade – have the potential to hurt specific distribution sectors, though the policies have yet to be clearly defined. Without immigration, the U.S. will experience faster wage inflation and slower overall growth, Beaulieu said. And distributors serving industry sectors heavily dependent on immigrant labor, such as construction and foodservice, may see customers struggling to comply with expected regulations tightening this labor force.
While still highly speculative, Trump has given indications of stronger tariffs or similar actions to level the playing field with Mexico, our second largest trading partner after Canada. Near-shoring activity by U.S. manufacturers has increased dramatically in the past few years, with strong growth in cross-border manufacturing and increasingly in the interior of Mexico.
Protectionist policy and risk of a trade war with major trading partners to support a stronger manufacturing sector on U.S. soil could be counterproductive, Beaulieu said.
Key takeaway: This is surreal. The political landscape has been upended, with every politician and pundit trying to emerge from the confusion and disruption without a new rule book and no idea when or if there will be rules. At the same time, the most popular economist in wholesale distribution outlines a positive picture on both the short- and long-term prospects for the U.S. economy and the distribution industry that keeps it moving. I know which message I’m going to focus my energy on.