While the electrical distributors who responded to the Electrical Wholesaling/Vertical Research Partners (VRP) 3Q 2023 quarterly survey reported moderate growth of +3.3% in Q3 2023, that’s the slowest rate of growth since Q4 2020, during the depths of the COVID crisis.
Nick Lipinski, the VRP equities analyst who manages the quarterly survey, said sale volume drove much of this growth as price increases moderated. “Q3 distributor sales were up +3.3% on +2.7% volume growth and +0.6% of price,” he reported. “The two-year growth stack of +16.8% remains strong, somewhat below the +18.8% in Q2 2023 but slightly ahead of the +16.6% in Q1 2023. The pricing result was the lowest seen since Q4 2020, up against a +5.8% comp.”
Lipinski also said that while the quarterly results were solid and generally in line or above expectations, several distributors noted a marked slowing in day-to-day activity in October.
“It’s too soon to tell if this is merely a temporary pause or the start of a more meaningful deceleration,” he said. “We have heard in prior quarters about soft spots of a week or two that turned out to just be air pockets in between spurts of still strong demand.
“Some distributors have also seen a slower quoting environment, though others still see a healthy pipeline related to reshoring and/or stimulus related investments. Looking forward, distributors are expecting sales down -1.6% on average for Q4 2023, the first anticipated decline since 2020.”
Lipinski said the early reads on 2024 demand were mixed, and that election noise may impact decision-making in 2024, but that most distributors agreed projects already underway will be seen to completion.
Interest rate sensitivity appears to be creeping in around the edges, with some suspicions that speculative commercial construction projects planned during the “free money” period could be at risk. However, backlogs generally sound like they remain healthy, which should provide some support in the event of a broader slowdown.
Lipinski said several respondents were optimistic about the pipeline of project activity and said 2025 was setting up to be a strong year of investment. In particular, Lipinski said respondents see activity around EVs (including battery and recycling), data centers (related to AI) and semiconductors. Infrastructure funding from government legislation will still be available in the coming years, they said.
“There appears to be a push from the OEMs at the distributor level to prepare for stimulus-related infrastructure projects, and to identify industries, regions and customers where these funds may flow,” he said. “Securing adequate technical talent will likely be one of the key impediments to the realization of these projects, but could smooth out the investment curve.”
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