2007 forecast: Furniture sales gains will slow
By Jay McIntosh -- Furniture Today, January 22, 2007
High Point — Slumping housing sales and a slower U.S. economy will put the brakes on furniture sales growth this year after a surprisingly robust 2006, according to Furniture/Today's consensus industry forecast.
U.S. consumer spending on furniture and bedding, the broadest measure of industry activity, is expected to grow by 1.5% this year and 2.2% in 2008.
That would make 2007 the industry's slowest year since 2001, when sales declined by 0.6%. It follows an estimated gain in consumer spending of 7.1% in 2006, a year that seemed to start strong but ended on a weak note as the housing market ran out of steam and consumer confidence wavered.
Homebuilding and home sales, activities that drive or at least usually coincide with healthy furniture sales, are expected to be slower this year and rebound somewhat in 2008. However, analysts contributing to the consensus forecast aren't sure when the housing slump that hit in late 2006 will really go away.
"It could last right through 2007," said Ken Goldstein of New York research firm The Conference Board. "Even an optimist has to face the reality that it will be a big factor in 2007, even if the downturn in housing has now reached bottom."
David Lereah, chief economist for the National Assn. of Realtors, is projecting modest increases in home sales this year, although he thinks they'll still be well off the 2005 record year.
"As the housing market recovers from its correction, existing-home sales should be rising gradually during 2007 — it looks like we may have reached the low point for the current cycle in September," he said. "We've entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down."
Housing is only one factor for furniture, which also tends to rise and fall on the winds of the economy's overall health.
The Furniture/Today forecasters are looking for only a modest decline in U.S. Gross Domestic Product growth for this year and next. That coincides with broader surveys of economists, with a minority calling for a recession in 2007 but most predicting the economy will chug along at a slower pace.
Analysts cite several factors that continue to be drags on the economy, including the Iraq war, high energy prices, the housing slump and an unsettled political climate with a new Congress and a lame-duck president.
Industry analyst Jerry Epperson of Mann, Armistead & Epperson in Richmond, Va., said interest rates, consumer confidence and job creation are the most important economic factors affecting furniture. He quotes manufacturing legend Paul Broyhill's axiom: "The demand for furniture never changes; the consumer's ability to buy changes."
Ken Smith, a longtime industry observer and managing director of High Point accounting firm Smith Leonard (formerly the local BDO Seidman office), said the economy is unlikely to recover to any strong degree until later this year.
"Consumer confidence and employment seem to be affecting the industry, even more than housing," Smith added.
"In fact, the slowdown in housing may start to have some positive impacts on furniture as so many have stretched themselves to buy larger, more expensive homes, that there has been no money for furniture replacements or filling new extra rooms," he said,
Lereah of the NAR also expects sub-par growth in the first half of this year, adding the Federal Reserve is welcoming the current slowdown to help reduce inflation.
Another key industry measure, furniture store sales, also is facing a slower growth rate for the coming two years, according to the consensus forecast. Sales grew at an estimated 5.4% in 2006 and are expected to advance just 1.8% this year and 1.1% in 2008.
The furniture store indicator measures sales of all products at stores that sell mainly furniture, so the figure includes appliances, electronics, carpets, home accents and other products at stores that sell them.
