Exclusive feature: The T&D Market Index compiled by Denali Intelligence — 3rd quarter

The following is an exclusive look at an abbreviated version of the third quarter (2008) T&D Market Index researched and compiled by Denali Intelligence.

About the index

Denali Intelligence’s T&D Market Index is based on analysis of 11 critical spend categories that represent core purchases for most T&D organizations, including:

“- Line Material
“- Meters
“- Steel Structures
“- Street Lighting
“- Switchgear
“- Transformers
“- Wire & Cable
“- Wood Products
“- Construction Services (Underground & Overhead)
“- Engineering Services
“- Vegetation Management

Since most of these categories have seen significant volatility over the past two to three years, the index is based on a weighted composite developed from an analysis of more than 30 utility T&D spend profiles. Denali analyzes the key cost drivers (commodities such as steel and copper, labor, and other cost factors) to develop the historical and forecasted price trends associated with the index.

The index provides T&D organizations a snapshot of what has happened to their budget for purchased materials and services over the past 12 months (to explain budget variances) and gives projections for the coming year.

The 3rd quarter index: A snapshot

Reflecting the broad economic slowdown, the Denali Intelligence T&D Market Index increased 2 percent in the third quarter of 2008 (see Figure 1, above), but remains up almost 10 percent on the year. Leading the downward pull are underlying commodities, including a 22 percent decrease in crude oil and sweeping decreases across all base metals. Diesel fuel prices fell 14 percent in the third quarter but remain up 20 percent for the year.

Metals and energy prices have retreated on eroding demand, both domestic and international. A slow U.S. economy and production cuts in China have nearly erased 2008’s first half gains in metal markets (see Figure 2, below).

The overall unemployment rate remained at 6.1 percent in September, up markedly from 4.5 percent a year ago. Since September 2007, the unemployment rate has increased by 1.4 percent which equates to an additional 2.2 million unemployed workers in the U.S. As the financial crisis rapidly unfolded in early October, fear of a long and harsh recession sped demand and price drops. This new market reality has increased corporate focus around cost restraint, and the September 2008 ISM Purchasing Managers Index (PMI) hit its lowest level since October 2001.

Market forecast

* Recessionary forces are expected to continue and intensify, with economic forecasts for the U.S. economy to begin recovery in mid- to late-2010.

* The IMF cut its 2009 global economic growth forecasts to 3 percent from 3.9 percent, the lowest level since 2002. According to the IMF, growth of 3 percent or below is an indication of global recession.

* The U.S. unemployment rate is forecasted to increase to 7 or 8 percent in late 2008 and early 2009.

* Reflective of recessionary forces and slowing T&D project loads, the Index is forecasted to increase by 8 to 10 percent in 2008 and ease to a 3 to 4 percent increase in 2009.

The full version of this report can be obtained from Denali Intelligence.

Denali Intelligence (www.denaliintelligence.com/) offers subscription-based market intelligence designed specifically for sourcing professionals. Their category-specific market reports help clients develop high-impact sourcing strategies, prepare successful negotiations, and understand important market trends affecting their spend categories. Contact them for more information on the full version of Denali Intelligence’s T&D Market Index, or other reports at 888.824.8866 or info@denaliintelligence.com.

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