MILWAUKEE-The Q4 Baird Industrial Distribution Survey from Robert W. Baird Inc. confirms the industrial economy is in recession. According to the report, based on feedback from nearly 300 independent and captive distributors with combined annual revenue in excess of $30 billion, revenues of respondent companies were down significantly in the final quarter, though increased pricing helped offset volume declines.

The firm’s industrial distribution research team, led by senior research analyst David Manthey, expects declines to continue through 2009, though it says the trajectory should not be as severe as in the final weeks of last year, which were negatively impacted by abnormal holiday closures. The report found average revenues declined 3.9% in Q4 after remaining essentially flat in Q3. It forecasts a further 3.6% decline for the first half of ’09 and a 1% for the second half. While overall pricing rose 1.1% inQ4, the growth was lower the 2.9% recorded the preceding quarter.

Researchers found few areas of strength, with only distributors of rental equipment anticipated to show revenue gains. Distributors of data communication products, fasteners and roofing and building materials are projected to experience the steepest declines. The most promising end markets include wholesale trade, general contractors and the chemical industry.

In related news, the Commerce Department reported wholesalers cut back on their inventories in December by the largest amount in nearly 17 years. Government economists predict continuing cutbacks will result in reductions in both transport demand and manufacturing levels.

Commerce officials say wholesale inventories plunged 1.4% in December. It was the fourth straight month of decline and nearly double analysts’ predictions of 0.8%. It was also the steepest drop since the department began keeping records in January 1992. Meanwhile, wholesale sales fell 3.6% in the final month of the year, slightly steeper than analysts’ expectations but less than November’s record 7.3% drop.

Despite the sharp cut in inventories, sales fell even faster, lengthening the time it takes for distributors to clear stockpiles. The inventories-to-sales ratio, which measures how many months it would take to clear inventories at the current sales pace, rose to 1.27 in December, up incrementally from the November ratio of 1.24. The ratio is at its highest level since March ’02.

The logistics falloff and inventory reductions will almost certainly lead to a continued drop in demand for warehouse, distribution and manufacturing space in coming months.

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