2006 forecast: Growth in furniture, bedding spending to slow to 0.8%
By Jay McIntosh -- Furniture Today, January 8, 2006
High Point — With the U.S. economy's expansion and the housing boom both beginning to throttle down, growth in consumer spending on furniture and bedding is expected to slow to a crawl this year.
Analysts surveyed for Furniture/Today's annual forecast look for the spending number, the broadest measure of the industry's size, to edge up by 0.8% this year to $78.4 billion.
One piece of good news, according to analysts, is that spending is likely to rebound to growth of 2.8% in 2007. That's about the same as the 2.9% increase that was estimated for the year just ended.
Furniture store sales are expected to roughly mirror the consumer spending trend, slowing to growth of 0.5% in 2006 and recovering to a 2.6% gain the following year.
While the analysts don't look for a U.S. recession this year, most foresee a slower growth rate for the economy and negative trends in some factors important to the furniture industry. Home sales are expected to slow somewhat, although remaining at historically healthy levels, and interest rates are expected to rise.
"The recovery continues to be very regional, with wide swings on a local basis," said analyst Jerry Epperson of Mann, Armistead & Epperson in Richmond, Va.
However, there are some positive signs. After rising an estimated 1.9% in 2005, consumers' personal disposable income is expected to climb 3.6% this year and another 3.5% in 2007. And the housing sales slowdown could have a silver lining, according to Epperson.
"We do believe that slower housing turnover will mean that people will stay in homes longer and invest more in decorating the homes they are staying in," he said.
In contrast to the slowdown at retail, the consensus forecast is that 2006 will be a recovery year for American furniture manufacturing. After an estimated decline of 1% last year, U.S. factory shipments are expected to rise 6.3% this year. The party could be a short one, however, since shipments are expected to be flat in 2007.
Ken Smith, national director of accounting and consulting firm BDO Seidman's Furniture Industry Services, has a 2006 shipments forecast that's slightly lower than the consensus — a 4% to 5% gain, about half of which will be related to price increases. "Overall, the economy seems to be holding up pretty well in spite of high gas prices and higher interest rates," he said.
While the Furniture/Today forecast doesn't try to predict furniture imports, Epperson issued an updated projection in December that shipments into the United States would keep growing faster than domestic production, rising 8.5% in 2006 and 8.3% in 2007. Imports will represent around 45% of all wholesale furniture shipments this year, he predicts.
Rising imports have been behind the decline in furniture prices, but that trend will halt this year, analysts predict. The consumer price index for furniture declined 1.2% in 2005 and is expected to creep up by 0.1% this year and 0.4% in 2007.
Of course, the index is an average, and could reflect a continued decline in some products but a rise in others. Costs rose last year for petroleum-based foam, affecting bedding and upholstery manufacturers, which could lead to higher average prices in some of those products this year. What's more, imports from China could be affected by any further strengthening of the U.S. dollar against the Chinese yuan.
Another factor on the industry's radar screens is interest rates, which are expected to continue their modest rise. Banks' prime rate, for example, averaged 6.3% in 2005, and the analysts expect it to rise to 7.5% this year and 7.8% next year. That's still modest by historical standards, but it could eat into consumers' incomes by increasing their borrowing costs.
Higher minimum-payment requirements on credit card debt, along with tighter limits on bankruptcy filings, might also cut into consumer spending early in the year and mainly would affect lower-end products, Epperson said.
Stefan Wille, president of Aktrin Furniture Information Center, expects a continued if slower recovery this year but is concerned about the level of U.S. borrowing. He said a high U.S. budget deficit and a high current account deficit would harm long-term economic growth in the United States.
| Furniture industry outlook | ||||||
|---|---|---|---|---|---|---|
| $billions | ||||||
| 2002 | 2003 | 2004 | 2005¹ | 2006² | 2007² | |
|
1. Estimated 2. Projected Source: U.S. Dept. of Commerce and Furniture/Today Economic Outlook Survey |
||||||
| Consumer spending for F&B | $68.9 | $70.0 | $75.5 | $77.7 | $78.4 | $80.6 |
| Furniture store sales | $51.5 | $52.2 | $56.7 | $57.9 | $58.2 | $59.7 |
| Furniture factory shipments | $23.3 | $21.8 | $22.5 | $22.3 | $23.7 | $23.7 |
| Percentage change from prior year | ||||||
| 2003 | 2004 | 2005¹ | 2006² | 2007² | ||
| Consumer spending for F&B | 1.5% | 8.0% | 2.9% | 0.8% | 2.8% | |
| Furniture store sales | 1.4% | 8.6% | 2.1% | 0.5% | 2.6% | |
| Furniture factory shipments | -6.2% | 3.2% | -1.0% | 6.3% | 0.0% | |
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