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08/07/2017

August Report: Short Term, Solid; Long Term, Moderating

Industry Trends Report

Distributors and manufacturers have left their 2017 outlook unchanged at 8% growth on average. This is up from an initial outlook of 3% and follows a decline of ~5% in 2016. Although near-term activity remains solid we are growing more conservative on the medium-term outlook as business optimism appears to be moderating and both sales and orders are plateauing.

July sales growth of 7% was slower than the 11% growth in June. We believe July sales were impacted by the timing of the U.S. July 4 holiday, which fell on a Tuesday this year vs Monday in 2016. Sales growth was in line with expectations in July, compared with a net 36% of participants that beat plan in June. Orders improved to 11% in July following 9% growth in June. Although orders improved in the month, they are trending below the 2Q average growth of 12%.

Inventories sentiment remains at very low levels from a historic perspective, as distributors and manufacturers categorized inventories as “just right” (equal # of participants too low and too high). This is a slight increase from the 1% net “too low” reading in June, which was the lowest reading since February 2013 and only the 3rd net too low reading in the history of our survey. The average reading over the past four months is net 2% “too high” which is well below the long run average of 32%.

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