Daily sales from the large distributors of industrial supplies give us a look at the health of the manufacturing economy here in North America. I find this information more helpful as a guidepost for near-term demand and pricing movements for industrial goods, and my takeaway after the W.W. Grainger (GWW) May sales report this morning is that things, overall, are stable.
Is this bad? Is this good? In real life, things are always more stable than what the equity markets would like to convince us, sure. But if we parse out the sub-segment verticals within Grainger's results in a little more detail, we see more interesting movement.
Government and light manufacturing retail were up low single digits. This is a solid trend and most indicative of GWW's share-gain initiatives and ever-increasing procurement initiatives with governments at the federal to local levels. Quite strong, indeed, and a special part of the long-term bullish investment thesis for GWW shares.
Commercial sales, comprised of procurement of MRO (maintenance, repair and operations) products such as paper towels, were down low single digits. This is somewhat unusual and usually an indication of near-term working capital adjustments being pursued by customers -- a regular occurrence in this soft environment.
Heavy manufacturing continued downward in mid-single digits, likely driven by the continued inventory shifts in the exploration and drilling apparatus in the U.S. This will continue to be volatile at best, in my opinion.
Most interestingly, though, is that contractors in the United States were down low double digits year over year. How can contractor procurement of supplies be down low double digits? Housing is on a tear. Non-residential construction is at all-time highs. Leading indicators, such as the Architectural Billings Index (ABI), are pointing upward.
My best guess is this: Contractors, year on year, built less inventory of supplies and drew down inventory for cash into this summer. Since last year, the caution around the economy has been a little more acute, so contractors are playing conservative. Maybe they are seeing something that we aren't yet in the underpinnings of our construction economy. Stay tuned.