Weak Demand in Industrial Market Holding Back Recovery in Electrical Industry

Aug. 16, 2002
Despite some occasional surges and the continuing strength of the residential market, the electrical industry probably won't see any marked improvement

Despite some occasional surges and the continuing strength of the residential market, the electrical industry probably won't see any marked improvement in electrical product sales until 2003.

According to the electrical manufacturers, distributors, manufacturers' reps, contractors and electrical association executives contacted for this article, demand remains soft across most product areas and in most regions of the United States.

However, reports from members of the National Electrical Manufacturers Association (NEMA) indicate that there are some pockets of prosperity.

“If you look at sales numbers, you get a mixed picture,” said Don Leavens, vice president and chief economist for the Rosslyn, Va.-based trade association. “We hear about a lot of building equipment feeding into the New York City area. Many smaller-level companies are hitting the jackpot. At the same time, overall housing construction continues to be very strong.

“But nothing is going into industrial automation and plants. Businesses are holding off on the heavy capital equipment. That was going gangbusters more than a year ago, but a lot of those contracts were cancelled. We're seeing a retrenchment in that area and it will take a while for that business to come back. Before we see any investment there, we need to see inventories come down — which is beginning to happen — but not across the board.”

Leavens said it will be the beginning of next year before there will be any real turnaround, and that it could be several years before the electrical industry sees the type of industrial expansion it has experienced in the past few years.

Bob Sullivan, vice president of distributor sales, Southwire Co., Carrollton Ga., does not see much improvement before first-quarter 2003, and he hopes that the company's residential business will keep its strength until other markets rebound.

“The residential business remains good,” he said. “There's may be a little bit of recovery in the commercial market, but nothing overwhelming. The industrial market remains slow.”

Sullivan added that in the wire and cable business, even though volumes are OK, margins remain tight.

Tom O'Gara, president, Remke Industries Inc., Wheeling, Ill., is seeing some increase in the level of activity even though large-scale projects aren't coming back yet.

“I think we're finally seeing some light at the end of the tunnel,” he said. “Before April, all we had was the tunnel. Some of those large-scale projects have to happen before we're going to feel better. But whatever happens, it will be gradual, not sudden. That's OK as long as it comes back.”

In the Washington, D.C., area, Jack Justilian, COO for Maurice Electrical Supply, said his company is doing better than distributors in other areas of the United States because the market does not have much OEM or industrial business, two areas that have been battered by the recession. As a result, his company focuses on commercial and residential construction, and those markets have been stronger.

“We're a little behind where we were last year but, in general, I'd say we're flat and will be for the rest of the year,” he said. “One place where we did see a definite fall-off is with the dot-com businesses — but the buildings they were occupying have been leased to others.”

On the West Coast, Paul Judge, vice president, OneSource Distributors, San Diego, doesn't expect things to improve until mid-2003. He said his company's business is “flat to slightly up.”

“I expect it to stay that way for the rest of the year,” he said. “When the consumer goods and OEM customers start coming back, that's when I can provide a more favorable report.”

Hank Bergson, president of the National Electrical Manufacturer Representatives Association (NEMRA), Tarrytown, N.Y., said NEMRA members are telling him that commercial/industrial construction right now is “dead in the water.” He adds that, “The slight upturns and positives people may have identified earlier in the summer have just plain disappeared.”

Bob Powell, principal, Kunz-Powell & Associates Inc., Malvern, Pa., agrees with Bergson's assessment.

“Business is off 7 percent to 8 percent compared to the same period last year,” he said. “But considering all that's happened to the country, that's really not horrible. What is bothering people more than anything else is that we'll go through a five- or six-week period and it appears we're coming out of it. More jobs are being let and general supply activity is up. Then you hit a wall and things grind to a halt.”

One rep with a market area that provides a diverse business mix seems to be riding out the recession better than many other companies. Byron Brewer Sr., chairman, Northeast Marketing Group LLC, Wallingford, Conn., said that his business is “flat to down by 1 percent to 2 percent” and has not been impacted as much as many others because it does not rely on any one business niche.

“By blending those markets, you can niche out some opportunities that others might not have,” he said. “I think the business is starting to rejuvenate a little. Probably by the fourth quarter the uptick will be positive.”

Howard Hedrick, principal, Electri-Products Group Inc., Greensboro, N.C., has “high hopes” for business becoming “somewhat stable” by year-end.

“We've had some good months and some relatively slow months, but in general it's really been rough. I don't think things are going to improve until mid-2003. The commercial market is relatively good and the industrial is totally dead. While we're not in the residential market, it has remained stable. What has really hurt us here is that we had a ton of textile mills that either closed or moved to Mexico.”

Tony Mann, president, E-J Electric, Long Island City, N.Y., said the stock market's decline has had a big impact on capital spending and in turn electrical construction work because publicly held companies have not been able to raise the capital they need for major expansion programs. However, he said E-J Electric has found a sound niche in installing back-up power systems.