While electrical distributors who responded to the Electrical Wholesaling/Vertical Research Partners (VRP) 1Q 2023 quarterly survey are still reporting moderate growth, it’s below what they were seeing in 4Q 2022.
Nick Lipinski, a VRP associate who manages the quarterly survey, said distributor respondents from the electrical wholesaling industry reported revenue growth of +5.4% for the quarter, with +3.5% coming from volume and +1.9% growth from price. That’s down from +8.9% growth in 4Q 2022, with +5.6% growth from volume and +3.3% growth from higher prices.
“We did not pick up on any notable slowing toward the end of the quarter from our individual distributor contacts (across all industries), with several actually pointing to a record March and continued momentum in April. Signs of a slowdown related to higher interest rates do continue to creep in around the edges but the underlying demand pulse continues to be relatively robust. 'Not much has changed' was a common refrain.
“Backlogs generally remain at record levels. We have not picked up on any real signs of widespread cancellations outside of some anecdotal one-offs. MRO activity sounds like it remains solid. Stimulus around infrastructure, energy efficiency/storage and EVs appear to be in early stages and could provide a boost to results if interest rates begin to take a larger bite out of project activity. Overall, the tone sounded more like a natural deceleration in growth after a strong post-pandemic recovery period rather than a broader and more meaningful downturn.”
In addition to the VRP estimates for sector growth trends, anecdotal comments from the 50-plus distributor respondents from the electrical, automation and power industries offered some interesting color to market conditions. As you might expect, long lead times and higher interest rates were key concerns. “Nothing's really changed. Still scrambling for material, offering alternates where we can find them,” said one distributor. Another said, “Still having huge, huge lead times, stuff on order over a year old (14 months).”
While none of the respondents said their business was dropping precipitously, several noted that a slowdown had begun. “We had a strong Q1 but that was backlog falling out of the system,” said one distributor, while another said, “Quotation and day to day activity has slowed some.”
Several distributors saw some opportunities in EV charging systems and intelligent lighting control. “Charging and energy storage, are like a “tidal wave you see but hasn't broken yet,” said one respondent, while another said EV charging activity was percolating, and noted municipal/buses as one EV active market segment. “Overall, lighting is strong, keeps expanding to different types and size modules, becoming more intelligent,” said a distributor.
While the more negative comments were not in the majority, there was definitely a sampling of discontent with market conditions. “Switchgear in shambles," said one distributor, while another said “project planning is difficult.”