Why This Matters to Distributors: War-driven energy volatility is raising costs while weakening demand, forcing distributors to manage tighter margins, unpredictable orders, and higher inventory risk at the same time.
A new survey from the Federal Reserve Bank of Dallas, combined with updated forecasts from Goldman Sachs, points to a weaker second quarter as war-driven energy shocks and rising uncertainty begin to weigh on economic activity.
Goldman Sachs now expects Brent crude to average $105 in March and $115 in April following disruptions to the Strait of Hormuz, prompting it to raise inflation forecasts and trim growth expectations. The firm now sees U.S. GDP growth at 2.1% in 2026, down 0.1 percentage point, and raised its recession probability to 30%, up 5 percentage points.
Goldman also lifted its inflation outlook, forecasting headline PCE inflation of 3.1% by December 2026, up 0.2 percentage point, as higher energy and food costs move through the economy.
That outlook aligns with new data from the Dallas Fed, which provides an early read on conditions in the energy sector and broader industrial economy.
The Dallas Fed’s latest energy survey found that oil and gas activity “contracted slightly in the second quarter,” with the business activity index falling to -8.1 from 3.8 in the first quarter, a shift from expansion to contraction. A measure of outlook uncertainty also rose sharply, reflecting growing concern among executives.
While the Dallas Fed report does not explicitly cite war, executives pointed to policy instability, tariffs and global volatility as key pressures shaping the outlook—factors closely tied to ongoing geopolitical conflict and shifting trade dynamics.
For distributors, the combined signals point to a more challenging operating environment shaped by both rising costs and softening demand.
Higher oil prices are expected to increase freight, packaging, and input costs, while Goldman Sachs estimates that energy passthrough alone could add 0.35 percentage point to core inflation this year. That dynamic is likely to result in more frequent supplier price increases and make it harder to maintain consistent margins.
At the same time, the decline in the Dallas Fed’s activity index signals weakening momentum in energy markets, which often serve as a leading indicator for broader industrial demand. A slowdown there can ripple construction, manufacturing, and infrastructure—core sectors for distributors.
That combination—rising costs and slowing activity—typically leads to more cautious customer behavior. Distributors may see delayed projects, smaller order sizes, and longer sales cycles, particularly in regions with significant exposure to energy production.
Inventory decisions are also becoming more complex. Slowing demand increases the risk of excess stock, while ongoing supply uncertainty limits how aggressively distributors can pull back. Many are likely to tighten inventory positions and rely more on flexible replenishment strategies.
The survey also signals potential delays in capital spending across energy and industrial sectors, which could weigh on demand for project-driven categories such as pipe, valves and fittings, electrical supplies, and other industrial products.
Taken together, the Dallas Fed data and Goldman Sachs forecasts suggest the operating environment is becoming more uncertain. While inflation pressures tied to energy are rising again, the broader challenge for distributors may be navigating a market where geopolitical disruption is beginning to slow activity and delay purchasing decisions.
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