Current Trends in Furniture Production and Sales

FURNITURE ECONOMICS

 

Published by: AKTRIN Furniture Information Center July 1999

 

 

AKTRIN’s MONITOR FOR AMERICAN CONSUMER SPENDING ON FURNITURE AND BEDDING

Following an astounding 6 percent increase in the final quarter of 1998, the US economy continued to expand during the first half of this year, albeit at a somewhat slower rate of 4.5 percent. Most of the economy’s energy is being derived from a very strong domestic demand. In spite of this fast growth, inflation is still under control.

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Quarterly data seasonally adjusted at annual rates

Source: U.S. Department of Commerce, Strategic Projections Inc., AKTRIN

AKTRIN’s MONITOR FOR CANADIAN CONSUMER SPENDING ON FURNITURE AND BEDDING

Quarterly data seasonally adjusted at annual rates

Source: Statistics Canada, Strategic Projections Inc., AKTRIN

 

 

 

 

The Canadian economy largely reflects the U.S. pattern. Real GDP growth in 1998 was 3.0 percent. A similar rate is expected this year and a slightly reduced rate of 2.5 percent next year.

From a regional perspective, the three westernmost provinces will be Canada’s growth laggards this year, but Alberta and British Columbia are poised to return to the front ranks in 2000. Newfoundland and Ontario will lead the pack in both years. Growth in Quebec is anticipated to be slightly below the national average in 1999 and again in 2000.

In the past, low borrowing costs have underpinned a steady recovery in the housing sector. End of June, mortgage rates rose by one-quarter of one percent - the sixth increase within two month – bringing five-year mortgage rates to 7.9 percent, up from 6.95 percent two months ago. Nevertheless, we believe that the dampening impact on construction activity will be moderate.

Ottawa’s February budget and the newly elected government in Ontario are emphasizing tax cuts. This, together with a growing job market made it possible that Canadians’ after-tax household income outpaced inflation for the first time this decade. While Canadian consumers remain more cautious than their American counterparts, the betterment of disposable income, as well as low interest rates are a strong incentive for retail sales.

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AKTRIN’s MONITOR FOR AMERICAN SPENDING ON OFFICE FURNITURE

Quarterly data seasonally adjusted at annual rates

Source: U.S. Department of Commerce, Strategic Projections Inc., AKTRIN

 

The American economy grew at a healthy rate of 3.9 % in 1998 and we expect only a slightly slower rate of approximately 3.7 % this year. However, the robust state of the economy and the luring risk of more inflation make it probable that the Fed will raise interest rates anytime soon. If so, this would lower the growth prospects to a rate of about 2.1 % next year.

Real business investment already slowed from its frenetic pace of 1999. Fixed nonresidential investments increased by an annualized 7.6% in the first quarter of this year, following a 14.6 % gain in the final quarter of 1998. Investment in durable equipment (including computers and furniture) increased by a more robust 10.5 % and stands now 11.2% above its year-ago level. Lower corporate profits and rising interest are expected to further slow corporate earnings and corporate capital expenditures. On the other hand, low inflation, declining costs of capital goods, and the need for companies to enhance productivity will strengthen investments. Taking these conflicting forces into account, we expect business capital expenditure growth to remain at a still decent 5.2 % for the next few years.

Government spending has been on a declining slope for many years. However, in 2000 - for the first time since the recession of 1991- government spending is expected to contribute to the economy’s growth again. Being a major user of office furniture, any expansion of the governmental sector will be a bonus for the office furniture industry.

The U.S. economy has added 4.3 million jobs in the last twelve months. Knowing that the manufacturing sector has pared 404,000 jobs during the same time, we conclude that service sector employment advanced by some 4.7 million positions. The job growth in the service sector bodes very well for the office furniture demand.

The American office furniture market – evaluated at end-user prices – stood at $ 37.2 billion in 1998. At an estimated growth rate of 7.7% this year and 4.9% next year, its value will reach $ 40.1 billion in 1998 and $ 42.0 billion in 2000.

 

AKTRIN’s MONITOR FOR

CANADIAN SPENDING ON OFFICE FURNITURE

Job creation is one of the most powerful driving forces for the office furniture industry. Nearly one million jobs were added to payrolls over the past three years. While the employment market that pushed Canada through 1997 and 1998 has moderately slowed down in recent months, we still expect that another 500,000 jobs will be created over the next two years.

In spite of the positive job market for Canada as a whole, employment fell slightly in seven provinces last year. The exception was Ontario, Newfoundland and Manitoba. The biggest job gains occurred in health care and social assistance, and the biggest losses were in wholesale and retail trade. Contrary to 1997 and 1998, the private sector has been paring their payrolls. On the other hand, the public sector – with its heavy concentration of desk-bound jobs –expanded its employment figures.

Corporate earnings have been lower than anticipated this year, forcing many companies to trim capital spending plans. It is to be hoped that a strengthening international economy and continued solid domestic demand will set the stage for a corporate profit revival in 2000.

The office-intensive service and high-tech sectors will continue to outperform the economy as a whole. So far this decade, the service industries advanced at an average rate of 2.2 % p.a. while the overall economy advanced at only 1.9 %. This pattern will prevail for the foreseeable future.

Since September 1998 Canadian interest rates have been lowered in five consecutive steps for a total of 1.25 %. Contrary to the USA, any tightening of the monetary policy by the Bank of Canada is unlikely to happen this year.

The Canadian demand for office furniture – evaluated at end-user prices – stood at C$ 3,520 million in 1998, up a healthy 15.9% from the previous year. This years growth will be at half that rate, and for 2000 we expect a still slower pace of approximately 5.4%. In view of this slowdown it will not be before 2001 that the market woulf break the C$ 4 billion mark. In dollar terms, the market may reach a value of C$ 3,792 this year and C$ 3,995 next year.

Quarterly data seasonally adjusted at annual rates

Source: Statistics Canada, Strategic Projections Inc., AKTRIN

 

 

AMERICAN CONSUMER SPENDING ON FURNITURE AND BEDDING

(Continuation from page 1)

Real growth of consumer spending also had a superb showing of 6.7 percent (annual rate) during the first quarter of this year. This was the largest increase since the fall of 1986. The good job market, rising incomes, low inflation, a booming stock market and low interest rates have been supporting consumers’ confidence.

Residential construction doesn’t show any signs of slowing yet. Sales of existing homes in the US totaled 5,378,000 units in 1998, the highest level in over 25 years. During the first quarter of this year, the seasonally adjusted annual volume for new housing starts was 1,766,000 units. If this pace continues, 1999 will become another record year.

The favorable economic conditions will likely prevail for the remainder of this year, albeit at a somewhat slower pace. Looking to the second half of 1999, some of the forces driving consumer spending may wane. The Federal Reserve Board may start to raise interest rates any time. Consumer confidence is bound to recede if falling equity prices take a bite out of households’ wealth. We anticipate that consumer spending growth will fall to 2.4 percent in the second half of 1999 and 2,3 percent in 2000.

In 1998, Americans purchased furniture and bedding valued at $ 57.9 billion. The corresponding figure for the first half of this year exceeded the 60 billion dollar mark (at annual rates) for the first time. For 1999 as a whole we anticipate a market value of $ 61.7 billion, or 6.5% above the 1998 value. As inflation was very minimal, most of this growth – that s 5.7% – represents a real (constant dollar) increase.

Toward the end of this year and in 2000, growth is likely be somewhat slower at an estimated 4.2%, or 3.3% after deducting the impact of inflation. This would bring the market valuation to $ 64.2 billion next year u

CANADIAN CONSUMER SPENDING ON FURNITURE AND BEDDING

(Continuation from page 2)

The Canadian market for household furniture (including mattresses) stood at Can$ 5,966 million in 1998, up from C$ 5,526 million in the previous year (evaluated at retail pices). This represents a growth rate of almost 8%. Throughout 1998, furniture consumption remained at a high level, even though growth – on a quarter by quarter basis – was minimal. To the surprise of most market analysts, this changed during the fist quarter of 1999 when households again accelerated consumption, raising their purchases by more than 4% over and above the value achieved in the last quarter of 1998. On the basis of this renewed strength, consumption for the entire year will exceed C$ 6 billion by a wide margin. We estimate growth for 1999 to be in the 7% range. If our prediction is correct, the market would culminate at

C$ 6,384 million.

We are somewhat more cautious in our prediction for the year 2000. Parallel to the expected slowdown in the USA, Canadian consumers will also become more restraint. Nevertheless, consumption growth for household furniture is likely to remain in the positive teritory, albeit at a low rate of only 1%. This would lift the market valuation to C$ 6,645 million in the year 2000 u

 

 

employment in the canadian furniture industry

Excerpt from AKTRIN,s Report on "Employment and Wages in the Canadian Furniture Industry"

 

As of 1998 the furniture industry in Canada employed some 61,600 persons across the country, down about 11 percent from it pre-recession peak level of 68,500 in 1988, but much improved from its early-1990s recession low of just 43,700 in 1993. In other words furniture industry employment has exhibited a remarkable resiliency across time, especially considering the impacts the industry faced since the early 1980s stemming from Canada's free trade agreements with the United States and Mexico.

The industry's share of both total manufacturing jobs and of jobs across all industries has held up better than might otherwise have been expected. For example, the industry's share of total manufacturing jobs in 1998 was only 0.10 percentage points lower than the 3.39 percent peak share it had obtained back in 1986. And while its share of all the jobs held by Canadians has fallen by almost one-fifth over the last decade - from a peak of 0.52 percent in each of 1986 and 1989 to 0.43 percent last year -- that trend is not surprising given the rapid pace of job creation in the service sector over that period.

Interestingly, the number of firms in the furniture industry declined more than the number of jobs over the same period. In 1988 there were 1,947 furniture firms operating in Canada, but a decade later that number had fallen almost 28 percent to just 1,408. Medium sized firms shrank relatively more than either large or small firms over that period, suggesting you either have to be big enough to compete internationally, or small enough to carve out a niche, in order to survive in the furniture industry in Canada.

 

 

 

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HOT PRODUCT AND CONSUMER TRENDS

According to the Color Marketing Group (CMG), which represents the opinion of 600 professional color and fashion specialists, six key trends can be observed:

These trends translate into CMG’s color palette for 1999, which includes three blues: a soft watercolor blue, the hue of water as seen from space and a bright blue also influenced by water. One pink in the palette also comes in a blue version.

The blues are backed up by spicy, earthy reds and browns, a couple of greens and a range of yellow tones from pale to rich gold.

CMG pundits have taken a look into their crystal ball another year ahead and have published predictions for 2000. In some instances, the home furnishings industry seems to be ahead of the forecasts and is already relying on high-impact hues to grab attention. For example CMG points to "Royal Purple" as a fashion leader in 2000. This deep hue, along with other purples, was frequently seen at the International Home Furnishings Market, both in fabrics and showroom backgrounds.

The reds are represented by "Wild Berry", a pure, bright red and "Red Rock," inspired by the color of iron ore.

Tempering the intensity of purple and red are metallics in silvery tones. Also on the pale side are whites that CGM designers say are becoming more and more important to the palette. Whites, however, are not pure but are influenced by the warmth of nature.

Blues will not have disappeared when we reach 2000, but two will be greener than this year. "Atlantic Blue" is said to be intense and iridescent and "Spaqua" represents the green side of water imagery. "Aero Blue" mirrors the sky at dusk.

CGM uses the words "iridescent, translucent and chameleon-like" to describe color choices for the year 2000. The color experts identify the influences that shape the selection as "individualism," "simplicity," "water," "ethnic and cultural blending" and "texture and finish."

The Color Marketing Group concludes, "By the new millennium, the average person will spend as many as 16 hours a day in front of a computer. To escape this monotony, consumers will search for individualized products to stimulate their creativity and respond to their unique needs." Retailers and manufacturers of furniture have the products and the inspiration to meet these challenge. Tracking trends to 2000 points the way to merchandising and display that woo and win customers.

 

 

 

 

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or

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ISSN 1098-5611

 

 

 

 

HOT PRODUCT AND CONSUMER TRENDS

(For Oct. Newsletter)

The move to more casual lifestyle looks and light wood finishes (Maple and Pine) continues.

Pine is hot, both in rustic and lifestyle looks. Pine is as hot as Oak was a few years ago.

Formal dining continues to wane.

Bright colors are hot. Bright blues set with yellow pillows are selling well.

Hot categories such as leather, home office and home entertainment will continue to get a lot of attention from consumers.

Retailers are broadening their offerings at stepped-up prices.

 

DESIGN TRENDS AT A GLANCE