Industry seen growing 4.8%

Jay McIntosh -- Furniture Today, January 18, 2011

HIGH POINT — What started as a weak recovery for the industry last year will pick up some steam in 2011, according to Furniture/ Today's consensus economic forecast.
     U.S. furniture and bedding sales at retail are projected to grow 4.8% this year to $86.5 billion, building on last year's 2.9% gain.
     That will still leave the industry several billion dollars shy of its 2007 peak as it slowly climbs out of the trough left by two down years, particularly the 8.1% decline in 2009. The forecast, compiled by Furniture/Today's market research team using projections from industry experts and economists around the nation, also calls for steady but slow growth in the U.S. real gross domestic product, a slight decline in unemployment and double-digit gains in home sales.
     Furniture store sales - including all products sold at the stores, not just furniture and bedding - are expected to rise 4.6% this year to $51.9 billion. That follows a 2.7% increase in 2010 and a 10.7% decline in 2009. Growth in consumer confidence will be a key factor in freeing up funds for furniture purchases, which can easily be deferred when people are insecure about their future, analysts surveyed for the forecast said.
     Job creation will be a big factor in restoring that confidence, although the forecast projects that unemployment will decline only slightly this year - to an average of 9.5% from an estimated 9.7% in 2010.
     "While the Great Recession has ended, we expect a subdued, uneven recovery as benefits from improved business and consumer spending are partially offset by depressed housing activity and stubbornly high unemployment," said Budd Bugatch, an analyst with Raymond James & Co.
     He said retail sales gains last year were largely driven by higher spending by more affluent consumers and easy prior-year comparisons. "More hiring would have broad positive implications for consumer spending, housing and economic growth," he added.
     Housing is one area where economists do expect significant gains, although activity will still fall short of its peak of a few years ago. Furniture/Today projects U.S. housing starts will rise about 18.2% to 700,000 and new home sales will jump 17.3% to 380,000. The National Assn. of Realtors, meanwhile, projects that resales of existing homes will climb 19.6% to 5.1 million. Industry observers said that as with jobs, improvement on the housing front will be a key factor for the industry's recovery.
     Analysts also said the credit crunch continues to affect the industry. Despite a growing trend for consumers to pay cash, installment purchasing remains important to retailers and lenders are still not granting credit as freely as they used to. Some stores also are still having trouble financing their operations, with credit cutoffs cited in at least two high-profile retail bankruptcies last year.
     Analyst Jerry Epperson of Mann, Armistead & Epperson said he thinks the industry will show some recovery this year but not until the second half, when he expects construction and home sales will pick up. He also said companies are entering 2011 "with too much product and inventories, and the industry will feel those excesses into the first half of 2011."
     Ken Smith, managing partner of High Point accounting and consulting firm Smith Leonard, also expects a slow-motion rebound.
     "From what most experts say, it will be years before unemployment returns to more respectable levels. It is also going to take some time for housing to recover," he said.
     "While I believe the economy is in a turnaround mode, I think it will take at least a year to see any significant improvement," said Smith.