Respondents to ASA’s monthly sales report registered a 15.4% change in average sales for July 2021 vs. July 2020. July 2021 vs. June 2021, respondents reported a median sales decrease of -5.7%.
On a trailing 12-month basis, respondents reported median sales of 12.3 % in July 2021 as compared to 13.5 % in June 2021 when compared to the 2020 data.
Inventories rose a record of 27.3 % for July 2021 compared to a year ago, a notable increase from even June 2021 which was 23.4%. The median three-month days sales outstanding remained the same in July as previously in June at 40.9 days.
The number of respondents showing a decrease in gross margin was 19.4 % in July as compared to June’s 20.8% total.
“The numbers show that the increase we are witnessing is beginning to level off, the sales are beginning to stabilize,” said Greg Manns, senior vice president of industry insights; ASA business intelligence partner. ”The economy witnessed a bulky expansion to make up for the shrinkage owing to the lockdowns last year. According to the feedback we are receiving, business remains strong for a lot of our members, however factors like shipping issues and labor shortages continue to be a problem, which is common across all industries right now. Inventories continue to swell due to a backlog of orders as well.”
ASA Business Intelligence Analyst Ayesha Salman said: “We will overcome these blips in time, if we do not face any further lockdowns owing to the virus variants. Commerce has been affected globally. Businesses must try to think out of the box and come up with creative ways to solve problems.”
GDP: We all missed that one! Most of the analysts were expecting second quarter GDP at a level between 8% and 9.5% based on the activity at the start of the quarter. The reality is that high growth tapered by the end and the final tally was “just” 6.5%. This remains impressive growth but not the kind of blazing speed that seemed to be in store. Now we are looking at Q3 growth closer to 5% than 7%.
Industrial production: IP improved a little with a 0.9% gain in July compared to 0.2% in June. Manufacturing saw a gain of 1.4%, and that was driven by an 11.4% gain in the automotive sector, which moved past its usual July shutdowns, but chip shortages are still a major constraint. Utilities were down 2.1% and mining (mostly oil and gas) was up by 1.2%.
Housing starts: Housing starts are up by 2.5% YoY as there continues to be demand. This demand has not been universal – most has been in robust markets where economic growth is taking place. Permits are another story – they are down to an 8-month low. The sector is being driven by low mortgage rates, but there are deep concerns regarding the cost of materials and a consistent shortage of labor. When mortgage rates start to rise, this sector will stumble very quickly.
Home improvement retail: Three factors tend to drive home improvement. Top of the list has been getting a house ready for sale, but in a seller’s market this has been less of a priority. Next up is renovating a home for some additional purpose (home office, quarters for elderly relatives, etc.) and the final motivation is basic upkeep and repair. When prices for materials and labor are high, these motivators fade as people delay decisions. Manufacturing: The latest PMI numbers fell out of the 60s to 59.5 – a decline from last month of 1.82. These are still very good numbers (readings over 50 signal expansion of the sector), but there has been a steady decline since the peak in March of this year (64.7). The issue is very familiar by now – labor shortages, supply chain breakdowns and higher prices for commodities in general. The good news is that demand has been holding fairly steady.
ASA members doing business in the industrial PVF space reported a steep growth of 21% in July compared to a year ago, which is only a fraction lower than June number of 22.2% higher than the previous year. Trailing 12-month sales for ASA industrial PVF distributors showed a sharp increase of 6.9% from the previous year. Average inventories rose sharply by 24.9%, while median change in ending inventory grew by 29.1%.The average days sales outstanding for that sector is 47.1 days.
35.7% of ASA industrial PVF distributors responding to the survey reported an increase in the total number of full-time-equivalent employees compared to a year ago, while 71.4% of industrial PVF distributors reported an increase of gross margin percentage, and 21.4% reported a decrease as of July 31, compared to the same reporting period a year ago.
Looking forward over the next 18 months, the ASA sales forecast continues to be upbeat, knowing that interest rate increases could start toward the end of 2022. That could slow some residential construction activity. In the near term, supply chain disruptions and higher raw material prices continue to create uncertainty – despite generally upbeat growth expectations. Generally, most sectors remain in a strong growth position and as the leisure and hospitality sector experiences improvement in demand, that will boost spending. The Delta Variant of COVID remains a risk and could delay some additional spending in certain segments – especially commercial construction related to offices, high-density public gathering places, and big retail complexes.Offsetting that is continued strength in e-commerce construction (warehouses, fulfillment centers, terminals and docks, etc.), health care, and some leisure and hospitality in regions of the country. Even educational spending is improving in many expanding residential markets in the south and southeast markets.
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