Sales growth slowed to its worst rate in more than two years, and broader revenue declines have some industrial distributors anticipating a long-feared economic slowdown in the second half of the year, according to the 2Q23 Baird-MDM Industrial Distribution Survey. The quarterly survey polled and collected commentary from more than 500 wholesale distribution executives nationwide. Results of the survey are summarized and analyzed in MDM’s 2Q23 MarketPulse Survey Report — now available to MDM Premium Subscribers.

Overall, distributors posted an annualized growth rate of -0.8% in 2Q23, down significantly from 1Q23’s 3.2% and 360 basis points short of Baird’s expectations. It was the first time since the fourth quarter of 2020 that year-over-year revenue growth for industrial distributors overall dropped below even. Some executives who were polled described 2Q 2023 in terms such as “very spotty,” while others voiced that markets relevant to them had started to soften.

And while sales fluctuated throughout the quarter — the highs were decently high for some and the lows were pretty low for others — one respondent replied, “I’m expecting more volatility in the second half of 2023.” In the Baird-MDM 1Q survey released back in April, the total-year 2023 revenue growth was forecast at 3.2% for the industrial distribution sector as a whole. In the latest survey, that total-year revenue figure is now being forecast at just 0.7%, a reduction of about 250 basis points.

As seen in the previous two quarters, the growth rate decline in 2Q 2023 was again consistent with the Institute for Supply Management’s Purchasing Managers Index (ISM PMI), which dropped to 46.0% — the eighth consecutive month of contraction and the lowest reading since May 2020’s 43.1% (near the apex of the COVID-19 pandemic). Aside from parallel but related drops in revenue growth and ISM PMI, cooling inflation may also become a factor in pricing during the second half of the year. The Producer Price Index for final demand increased just 0.1% in June, while the Consumer-Price Index climbed 3% compared with a year earlier. While producer prices stayed relatively flat, it was consumer inflation’s slowest pace of increase in more than two years.

MDM Premium subscribers can access and download the 2Q23 MarketPulse Survey Report here.