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Jay McIntosh

'10 view: Slow growth

Jobs, housing still pose challenges

Business will come trickling back to the furniture and bedding industry and the broader U.S. economy this year, according to Furniture/Today's annual survey of economic forecasts.

But don't expect a rapid rebound, most forecasters say.

While the technical trough of the recession is past, growth is likely to remain hemmed in by continuing weakness in consumer confidence, employment and housing.

Industry analyst Jerry Epperson of Mann, Armistead & Epperson is forecasting that U.S. consumer spending on furniture and bedding will rise 3.7% in the coming year and another 7.1% in 2011. After two years of declines, however, such gains still would leave the industry a few percentage points shy of its 2007 peak.

Looking at the broad economy, the consensus estimate by analysts is that U.S. gross domestic product will increase by 2.5% this year, reversing the 2.6% decline in GDP through the first three quarters of 2009. Personal disposable income, a key indicator of consumer spending power, is expected to increase by 1.2% in 2010 after rising a barely noticeable 0.2% through October of 2009.

Housing starts and home sales are expected to improve significantly this year, but are likely to remain well below their peaks of a few years ago.

And job worries could still keep consumers from opening their wallets. U.S. unemployment is expected to average 10% this year, up from a 9.2% average rate through November of 2009.

Like most analysts, Epperson said in his late December forecast that while he expects growth, he still has several concerns, including a shaky financial system, restrained consumer spending, a glut of homes for sale that is depressing prices, the struggles of foreign economies, and continued partisan politics in Washington.

“We are comfortable with a decent recovery in the second half after a very disappointing 2009,” he added. “However, we are uncomfortable with the longer-term outlook because we believe that the massive government spending will eventually result in either inflation, some sort of serious currency adjustment, or another economic correction.”

Another peril for the industry — and another factor that makes forecasters less confident about their predictions for 2010 — is the continuing tight credit market.

“Historically, consumer confidence and sales of existing homes have been among the most significant drivers of furniture sales — though availability of consumer credit will also play a significant role in determining the shape of the recovery,” said Budd Bugatch of investment firm Raymond James.

The credit issue also extends to retailers. Some have been telling manufacturers that they'd like to purchase more furniture to add to their low inventories but can't get loans or credit from their local banks, which limits their open to buy.

James F. Smith of Parsec Financial Management also noted that new mortgages and refinancing loans are “much harder to get than before August 2007, which hugely reduces the demand for furniture.”

Aided by continuing tax breaks, however, the housing industry is expected to make significant steps toward recovery this year after a somewhat bleak 2009. Housing starts are expected to climb to about 730,000 — up from an annual rate of 551,000 reported through November of 2009, although still well shy of the 1.4 million level of 2007.

New home sales are forecast to climb by more than one third, to 510,000. Home resales are expected to climb about 11% this year to 5.7 million, although some of those will be foreclosures, which could continue to depress housing prices.

Mortgage rates are expected to remain near their current lows, averaging 5.15% for a 30-year fixed term in 2010, compared with an average of 5.05% through November of 2009. That should also support housing activity, depending on mortgage availability.

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