It’s slow growth…
But it’s still growth
By Anna Thibodeaux
 Growth is still growth even though it will be modest is this year’s forecast from industry sources as they courageously glance into their economic crystal ball. They also cautiously say, as the numbers become clearer, there’s no apparent cause for alarm long-term.
A few economic jitters have surfaced from such factors as higher interest rates, skyrocketing energy prices, a potentially overvalued stock market and slowed housing starts, according to Aktrin Furniture Information Center in High Point, N.C., an industry analyzer.
Aktrin, while it also forecasts modest growth, says furniture value is still increasing and office furniture will continue rebounding from a disappointing 1999. While market value for household furniture rose by 8.4 percent last year to $65.3 billion, it is projected to grow another 3.3 percent this year to $67.4 billion.
Consumer demand for durable and non-durable goods grew an anticipated 5.3 percent last year, while it may still gain a projected 3.2 percent this year, according to Aktrin research.
Offering a beacon on the economic horizon are industry associations’ predictions of growth, although modest, in furniture, wood components, cabinetry and architectural woodwork, in interviews conducted by Modern Woodworking. Others, however, in markets like hardwood lumber and engineered wood, anticipate level sales for industry-specific reasons and even a buyer’s market for lumber.
Increased demand for wood and upholstered furniture and bedding expected to continue
“The furniture industry, over the last five years, has had significant compounded growth,” says Jackie Hirschhaut, executive vice president of the American Furniture Manufacturers Association. “I don’t think there’s any cause for alarm to see smaller numbers in 2000 and the near future because they still reflect considerable advances in growth.”
The industry “is holding its own,” Hirschhaut says. “There’s no complacency at all,” she emphasizes, adding, corporate executives are “aggressively pursuing their business.”
According to AFMA’s Econometric Model forecast, consumer demand for furniture is projected to hit $65.8 billion this year. For 2000, the figure was estimated at $66 billion, showing a 8.1 percent rise over 1999.
Manufacturer furniture shipments also are expected to rise 2.1 percent this year, reaching $26.3 billion, and rise 3.4% in 2002.
Wood furniture shipments will jump a projected 1.3 percent to $12.5 billion this year compared to a 4.3 percent increase reaching $12.4 billion, in year 2000 shipments, says the AFMA. Shipments were $11.8 billion in 1999.
A modest 3.2 percent increase also is projected in upholstered furniture shipments this year with the total anticipated to reach $11.2 billion. Year 2000 sales grew an estimated 2.6 percent hitting $10.8 billion, where 1999 sales hit $10.6 billion.
At AFMA’s December 14 economic conference, the association also predicted 1.2 percent growth in consumer demand for furniture in 2001, rebounding to 3.4 percent in 2002. It hit 8.1 percent last year, making the third highest level since 1986 when it peaked at 10.6 percent.
The Aktrin Furniture Information Center predicts slowed growth of 3.3 percent in U.S. household furniture this year. That’s down from an 8.4 percent growth last year and in 1999.
Based on these estimates, furniture market value will continue growing to a predicted $67.5 billion this year. It hit $65.3 billion last year, up from $60.3 billion the previous year, according to Aktrin.
“After a disappointing 1999, office furniture sales will be somewhat stronger this year,” says the market analyst about last year. Sales are predicted to grow 4 percent this year, nudging the $40 billion mark.
Market factors:
$ Real disposable income is predicted to fall to 2.6 percent this year. It was 4 percent in 1999 and 3.1 percent last year. “Individuals’ wealth is still advancing, but now it is believed widely that the stock market is overvalued,” Aktrin says. “The slowing economy will affect equity markets and the risk of a retreat has increased. This, in turn, may feed back into more restrained household purchases, particularly of durable goods.”
$ The Federal Reserve raised interest rates six times in the last 15 months, slowing economic growth. But Aktrin predicts the slowdown will not be severe, especially pointing to GNP growth expected to stay above 3 percent this year.
$ Employment growth is predicted at 1.7 percent this year. It was 2.2 percent last year and the previous year.
$ Rising labor productivity brought firms healthy corporate profits. Corporate earnings grew 8.7 percent last year, while they may fall 0.9 percent this year.
Outsourcing trend spurs on wood components shipments
Component shipments are expected to increase 8 percent this year in North America, according to the Wood Component Manufacturers Association’s new 2001 Dimension & Component Industry Market Study of its members.
Last year, shipments totaled $4 billion, up 7 percent, but fell below the predicted 12 percent, says WCMA Executive Director Steve Lawser.
“A major factor contributing to the evolution of the wood components industry is the continued growth of outsourcing by furniture, cabinet and other finished wood product manufacturers,” Lawser says. “Studies have shown that companies that purchase most of their components earn a higher return on equity compared to those that make their own components.”
Largest markets for this industry are furniture, cabinetry and building products. Other markets include decorative and specialty components for musical instruments, picture frames, wall plaques, toys, kitchen items and novelty items.
Several factors poise the industry for continued growth:
$ Component production has expanded significantly as more sawmills and dimension operations diversified into value-added wood products.
$ Furniture and cabinetmakers are finding it more efficient to buy wood parts instead of retooling to make them.
$ Component manufacturers, after heavily investing in technologically advanced plants and equipment, are ready to meet the growing demand for precision components.
Industry issues include:
$ While sales are good, profit margins are slim due to rising production costs.
$ Over half of WCMA members cite finding and keeping skilled labor as their top concern.
$ Other issues include foreign competition, timber availability, forest certification, competition from wood substitute materials and price-cutting by competitors.
Remodeling fuels steady demand for cabinetry
This year’s cabinetry market is predicted to show about the same growth as it did in 2000, says Dick Titus, executive director of the Kitchen Cabinet Manufacturers Association in Reston, Va.
While new construction is expected to decline, remodeling will fuel steady demand overall in the market this year, Titus says. The industry has experienced 54 months of consecutive, steady growth.
Market factors:
$ Baby boomers are buying second homes and remodeling.
$ Remodeling kitchens and baths is spurring major growth.
$ U.S. manufacturers get the “lion’s share” of sales with 20 percent or less going to imports (mostly Canada).
Architectural woodwork backlogs expected to increase
The Architectural Woodwork Institute in Reston, Va., also reports last year’s profits will exceed the previous year’s and backlogs are expected to increase through last year.
Industry trends:
$ Technology, implementing technology and “seamless” manufacturing are necessary to better serve customers.
$ Companies must review product distribution and better manage information.
$ Consolidations, while occurring on a small scale now, will continue.
Hardwood lumber sales increase will be consumer driven
2001 will start off slow, but improve long-term, says Mark Barford, executive vice president of the Appalachian Hardwood Manufacturers.
As consumers’ tastes gravitate to fine furniture and heirlooms again, the demand for high-quality hardwoods increases, Barford states. For example, a $15,000 cherry table sold instantly. They’re also seeking out quality extras like moulding and hardwood cabinets.
“Our general message is… it’s still a great industry and we’re here for the long run,” he says. “We have a gigantic forestry resource in this country and it’s growing faster than we’re cutting it.”
Market factors:
$ The industry cuts nearly 13 billion board feet of lumber a year, mostly comprised of oak, yellow poplar and maple.
$ The erratic Euro has hurt export sales of lumber and hurts domestic competition.
$ The furniture industry is carrying the highest inventory of finished product it’s had in years. The market is good, but it will need time for it to catch up.
$ Increased use of alternative materials such as plywood, oriented strandboard and plastics also is hurting the hardwood market.
$ U.S. hardwoods go to China. “We send our lumber over there, they make it into furniture and send it back, cutting us by 50 percent,” Barford says.
$ The U.S. industry needs to update machinery.
Oversupply of engineered wood will cause highly competitive year
“For board producers, it will be a highly competitive year,” says Tom Julia, executive vice president of the Composite Panel Association and Composite Wood Council. “For the manufacturer, it will be a good year to go shopping for board.”
Some 8.35 billion square feet (3/4-inch basis) of MDF and particleboard was sold in the U.S. and Canada in 1999, Julia says. That’s an 8 percent increase over 1998, but he foresees sales leveling off this year.
Market factors:
$ In a cyclical rebound, the industry has an oversupply of product. In the 1990s, because of a product shortage, everyone invested in new facilities and “it’s catching up with us,” Julia says. “It’s fairly typical of the ebb and flow in the supply-demand ratio.”
$ There’s an apparent slowing to the nation’s steam-rolling economy. Market figures are showing an economic lull in major markets like home furnishings and construction, which Julia anticipates will continue. Resource Information Services, an industry economic forecaster, has forecast a similar economic slowing.
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