2005 forecast: Growth in furniture spending to slow to 4.1% rate
By Jay McIntosh -- Furniture Today, January 24, 2005
High Point — Retail furniture sales rebounded faster than expected in 2004 and will keep rising this year and next, although at a slower pace.
U.S. furniture factories, meanwhile, were held to meager gains last year by import growth and pressure on prices but will see bigger — though still modest — increases in shipments in 2005 and 2006.
The split-personality prediction is the consensus of contributors to Furniture/Today's annual economic forecast, which looks for a U.S. economy that continues a slow recovery and a housing market that cools off just a little. Rising interest rates could be a slight drag on growth, but a declining unemployment rate and higher disposable income should keep shoppers in stores.
Based on the latest estimates, U.S. consumer spending on furniture and bedding jumped 8.1% in 2004, a sharp improvement after a 2.4% rise in 2003. It was almost twice the increase predicted in last year's consensus forecast.
Going up against the healthy 2004 numbers, spending is expected to grow another 4.1% this year and 4.2% in 2006.
Sales at furniture stores, defined as retailers where furniture accounts for at least half of sales, grew more slowly than consumer spending in 2004, and that trend is expected to continue. Furniture store sales rose an estimated 4.5% last year and are expected to grow 2% this year and 2.7% next year. This appears to indicate that sales are growing faster in other channels, such as discount stores.
That shift in the shopping landscape may partly explain the meager rise in furniture prices at retail, estimated at 1.1% last year and projected at 1.3% and 1.2% in the next two years — less than half the increase most economists expect for the overall consumer price index. The continued onrush of low-cost imported furniture, and the price pressure on U.S. plants that compete with imports, also is believed to be holding down retail prices.
U.S. wholesale prices for furniture did rise an estimated 2.6% in 2004, but are expected to climb just 1% this year and 0.1% in 2006.
U.S. furniture factory shipments, evidently held down by import competition, recovered from a decline in 2003 to a 1.5% increase last year. They're expected to pick up the pace with growth of 3.7% this year and 2.7% next year.
Ken Smith, national director of BDO Seidman's Furniture Industry Services and a participant in the forecast, said he believes the pace of importing may slow somewhat.
"With the tariffs that were added on (Chinese) bedroom plus the increases in freight costs, some of the benefits have been lost," he said. "In addition, many retailers especially are realizing the cost of importing is more than landed costs. The amount of money that is tied up, limiting the ability to buy other product, the cost of carrying more inventory, the costs of mistakes (ordering containers that do not sell through), various quality issues and travel costs all add up."
One product area where growth could accelerate, however, is upholstery. Jerry Epperson of Mann, Armistead & Epperson in Richmond, Va., another forecast participant, said the expiration of U.S. quotas on Chinese textiles could lead to the import of more fully upholstered Chinese furniture.
Epperson did note that the recent Indian Ocean tsunami is likely to cause further disruption this year in ocean shipping, which already faced container shortages.
Rising U.S. interest rates, meanwhile, are expected to dampen home construction and sales, though not by much. While housing is usually seen as a bellwether for furniture, Epperson says a housing slowdown may actually help the industry, with homeowners taking a break from buying up and concentrating on furnishing the homes they already have.
Smith pointed out another shift in spending patterns that he thinks is not so good for the industry.
"In the last few years, more and more consumers have taken on commitments for cell phones (one for every member of the family), cable or satellite services, Internet access and other such items. This has caused a great deal of money to be taken away from consumers' disposable income every month," he said.
He estimates that a household might spend $1,200 to $3,600 a year on items and services that didn't exist a few years ago. And it's not just wealthy consumers who are spending the money, meaning the trend could affect the industry at all price points.
| Furniture industry outlook | |||||||
|---|---|---|---|---|---|---|---|
| Change from same period, prior year, current dollars | |||||||
| 2004 avg | 2005 Q1 | 2005 Q2 | 2005 Q3 | 2005 Q4 | 2005 avg | 2006 avg | |
| Source: Furniture/Today Economic Outlook Survey | |||||||
| Furniture store sales | 4.5% | 2.5% | 2.9% | 1.0% | 1.9% | 2.0% | 2.7% |
| Consumer spending for F&B | 8.1% | 4.5% | 4.2% | 3.8% | 3.8% | 4.1% | 4.2% |
| Furniture factory shipments | 1.5% | 2.0% | 2.7% | 5.9% | 6.6% | 3.7% | 2.7% |
| Change from same period, prior year, constant dollars | |||||||
| 2004 avg | 2005 Q1 | 2005 Q2 | 2005 Q3 | 2005 Q4 | 2005 avg | 2006 avg | |
| Furniture store sales | 3.4% | 1.2% | 1.6% | -0.3% | 0.6% | 0.7% | 1.5% |
| Consumer spending for F&B | 7.0% | 3.2% | 2.9% | 2.5% | 2.5% | 2.8% | 3.0% |
| Furniture factory shipments | -1.1% | 0.9% | 1.6% | 4.8% | 5.6% | 2.8% | 2.6% |
