Furniture spending expected to grow 0.4% this year
Modest rebound expected in 2009
Jay McIntosh -- Furniture Today, January 17, 2008
HIGH POINT — The furniture industry ended last year on a low note and will keep humming the same tune well into 2008, according to Furniture/Today’s annual forecast.
U.S. consumer spending on furniture and bedding is expected to rise just 0.4% this year, to $87.2 billion, with most of the gain — such as it is — coming in the year’s second half. Furniture store sales, which can include additional products like appliances and rugs, are projected to fare only slightly better with a gain of 0.8%, again weighted to the second half.
Last year was no picnic, but according to the latest estimates it did deliver modest gains of 2.9% in consumer spending on furniture and 2.1% in furniture store sales, compared with the 2006 levels. Most of the gains occurred in the first half of 2007, with the second half flat.
If the 2008 projections hold, this will be the industry’s slowest year since 2001, when consumer spending declined 0.6% from the previous year.
The industry should modestly rebound in 2009, with growth of 2.8% in consumer spending and 3.8% in furniture store sales, according to the forecast.
For the larger U.S. economy, the big question is whether this year will bring a recession, usually defined as at least two successive quarters of declines in the gross domestic product. A weak housing market, high energy prices, sagging consumer confidence and a bearish stock market were bad omens as 2007 was winding down.
Budd Bugatch, a contributor to the Furniture/Today forecast who follows the industry for Raymond James & Associates, said his firm doesn’t anticipate a recession in the broad economy.
“Despite the drag of … housing and the higher energy prices, job and wage growth remain supportive, exports are booming due to the weakness of the dollar and economic expansion overseas, and monetary policy has been accommodative,” he said. “That said, the residential furniture industry is already in recession, and has been for some time.”
A number of big publicly held furniture companies have reported a contraction in their sales numbers for much of past year. And since the industry is a net importer, not an exporter, the weaker dollar hurts rather than helps.
As a number of analysts have pointed out, we likely would not realize that the economy was in a recession until a few months after it started. It takes that long for the government to size up GDP performance and verify a broad downturn.
Consumer confidence and the health of the housing industry will be key factors in the industry’s performance this year, analysts said. The Conference Board’s consumer confidence index ended 2007 at the lowest levels of the year, 87.8 in November and 88.6 in December, down from 105 and higher for every month through September.
Troubles in housing, with the subprime mortgage mess and declining home values in some markets, haven’t exactly bolstered confidence.
Jerry Epperson, another forecast contributor and industry analyst with Mann, Armistead & Epperson, said he expects the housing market to start to recover this spring. Federal incentives to stabilize housing and credit card debt will be a factor, he said.
But another contributor, Stefan Wille of the Aktrin Furniture Information Center, expects the housing downturn to continue until early 2009. He’s also concerned about high consumer debt and slow income growth, which he said “always depresses furniture consumption more than most other consumer goods. Furniture is more volatile than the economy as a whole.”
One aspect of the furniture economy that will have more volatility this year and next, according to the forecast, is wholesale pricing. The producer price index for furniture is expected to climb 5.9% in 2008 and 4.9% in ’09, a steeper rise than the estimated 2.1% in ’07. Likely reasons include the dollar’s weakness, which tends to make foreign-made products and components more expensive, and higher transportation costs due to $100-a-barrel oil.
But don’t expect to pass those prices along. The consumer price index for furniture, which was flat in 2007, is expected to inch up by 0.4% this year and 1% in 2009.
In housing, the forecast panel predicts declines in housing starts and home resales this year and about the same level of new home sales. On the plus side, mortgage rates are expected to soften a little this year — from an average of 6.4% on 30-year, fixed-rate loans down to 6.1%.
For the full year, panelists expect slightly slower growth in the broad economy in 2008 than took place in 2007 — 2.5%, compared with 2.6%.
