Michigan's model holds out hope for '08 and '09
Jerry Epperson -- Furniture Today, January 13, 2008
Reading government, association and public company statistics can be depressing, especially in a year like 2007 when the news is consistently miserable. You know it's bad when the only good news is that a number wasn't as weak as expected. For example, consumer confidence in December was flat, according to The Conference Board, and that's good news because it stops a sharp four-month decline.
Sometimes, weakness can make things look better later. Double-digit declines in 2007 have given us some easy numbers to beat in 2008 — if a recovery actually materializes. This is true for furniture makers, importers, retailers and for the housing industry too. Declines have resulted in cost-cutting efforts across the board that should put the industry in better shape in 2008.
If history is a guide, periods of sharp decline tend to have more brisk recoveries than more drawn out declines.
Some are speculating the U.S. dollar may be nearing a trough in its value after a 38% decline since 2002 against a trade-weighted dollar index. That would be quite a change.
The best news we have heard came from the recent University of Michigan economic forecast. This respected economic model does the best job in the consumer durables sector, in our opinion.
While it calls for very weak economic growth in the fourth quarter of 2007 and the first quarter of 2008, it calls for 3% growth in gross domestic product in the second half of 2008, and 3.3% growth in 2009. That's pretty healthy and, best of all, the Michigan model doesn't see a recession unless unforeseen events occur. By the way, why are "unforeseen events" always bad?
The model also forecasts that housing turnover will trough in mid-2008, with some recovery in the second half and a better year for housing in 2009. They even expect home values to rebound in 2009. Yea!
We expect the furniture industry to essentially hold its own in 2008, see some gains versus the sad 2007 numbers in the second half, and experience a decent recovery in 2009.
Still, there will be ongoing weakness in 2009 because some regions will be slower to recover for local reasons. Housing always is a local market. Typically, the furniture segments that have fared the poorest — big-ticket items like bedroom and dining room furniture, for example — are likely to show the most pronounced improvement.
Mattress sales, which grew a solid 5% in 2007, should show further steady gains in 2008.
That's how we see it today. But remember, it will change soon.
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