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What Distributors Should Do While the Economy Is Growing

Chairman's Column - June 2016

Richard W. Schwartz, NAW 2016 Chairman of the Board, and Chairman of the Board, Winsupply, Inc.

The economy this year continues to grow overall, albeit at a relatively slow pace in the first half. This was predicted accurately by Dr. Alan Beaulieu, president of ITR Economics and senior economic advisor to NAW. In January at the NAW Executive Summit, Alan predicted a relatively slow pace of growth in the first half. He now says the second half will continue with decelerated growth before reaccelerating in the very late months of the year.

Certainly, different areas of the country and different sectors of our industry are growing faster than others. In my sector, construction supply, the Associated General Contractors of America reported overall construction employment in May grew in 235 out of 358 metro areas year over year, was unchanged in 56, and declined in 67. The data combines construction, mining, and logging jobs. Double-digit job gains in larger metro areas were reported in Honolulu; Boise City, Idaho; Anaheim, California.; Miami Beach; Ogden, Utah; Orlando; San Francisco; Baton Rouge, Louisiana; Las Vegas; Austin, Texas; Columbus, Ohio; and Sacramento, California. But significant job losses were reported in the petroleum production areas of Odessa, Midland, and Laredo, Texas; and North Dakota. Other cities with big cuts were Tuscaloosa, Alabama; Greeley, Colorado; and Omaha, Nebraska.

Meanwhile, the Fed is again delaying a hike in short-term interest rates until the economic outlook is clearer. What became unclear was the jobs report in May when only 38,000 jobs were added (U.S. Bureau of Labor Statistics), following the similarly flat month of April. Federal Reserve Chairwoman Janet Yellen asked at the recent World Affairs Council of Philadelphia, “Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy? Or will monthly payroll gains move up toward the solid pace they maintained earlier this year and in 2015?”

The Fed has a congressional mandate to grow the number of jobs to full employment without triggering inflation. After raising short-term rates in December, the Fed gave three benchmarks that would lead to another rate increase: acceleration in economic growth in the second quarter, continued improvement in the job market, and signs that inflation is picking up.

Ms. Yellen does appear to be in close step with Alan. The Wall Street Journal reported Ms. Yellen as saying she “expects the economic expansion to continue, noting that overall the labor market’s progress has been quite positive, household incomes have been rising, the housing sector has been strong and fiscal policy is now providing a boost to the economy, rather than a drag.”

This is very much in line with Alan’s comments in January. “The good news is overwhelming,” he said, giving his impression that consumers are in great shape, the world is relatively calm, employment is rising, banks are lending, retail sales are rising, non-residential construction is improving, and deficit spending continues with no fear of austerity.

(It is worth pausing to note that heavy government regulation and the upcoming election have bred uncertainty which continues to be a dampening factor on business expansion.)

At his January address, Alan concluded with strategies he believes wholesaler-distributors need to execute now while the economy is growing:

  • Have big goals in place; that is, reach for new sales and profit records, grow market share, or another benchmark. Your business can identify which goals to attain.
  • Make sure your chief marketing officer has a place at the table. Now is the time to invest in market research, branding and messaging, and in our respective competitive advantages.
  • Spend more on labor because attracting and retaining talent remains a core need. The labor shortage is expected to continue through next year, and we must invest in people to achieve our big goals.
  • If faster growth does occur in the second half of this year, make sure you have enough product, equipment, and supplies in stock to meet the demand.

One of the great questions Alan posed regarding companies that may be dealing with slower growth was, “Is the slowing at my company because of me?”

If you’re asking that question, your membership in NAW is paramount in my opinion. NAW has proven essential to Winsupply where I serve as chairman. We’ve been a member for many years and have found NAW membership to be valuable for learning innovative ideas, benchmarking best practices such as pricing excellence, and adopting proven strategies for improving virtually every facet of our operations.

With the current challenges of rapid changes in customer expectations and the need for technology, people, and processes to meet or exceed them, I don’t know of a better way to address these challenges than through our membership in NAW.