| ¡¡ The N. American furniture Markets
American Furniture Market Trends
Many economic indicators suggest that the recession in the United States is over.
Disposable income of Americans rose in January for the first time in six months. The
improving economic conditions also helped sending the stock market to higher levels and
thereby boosting consumers' wealth.
The housing market weathered the economic slowdown fairly well. After a record-braking
1.64 million new housing units put in place in 1999, the number dropped to 1.57 million in
2000 but rose again to 1.61 million last year. Housing starts advanced 6.3% in January of
this year, on the back of a 19.4% jump in multiple-unit starts. Single-family starts have
moved higher for three months. Parallel to the new housing market, building permits and
sales of existing homes are also progressing nicely. For each of 2002 and 2003, analysts
estimate new housing starts to come in at approximately 1.6.
Rising income, low interest rates and a healthy housing market will be a boon for
consumers' confidence. So far, consumer spending is showing only modest signs of revival,
but it is expected to accelerate in the second half of this year. For 2002 as a whole, we
anticipate a growth rate of 1.5%. This is still pale in comparison to previous years.
Consumption growth reached 4.8% in 2000, and a similar pace prevailed in the first half of
2001. Even though it started to drop steeply in the second half of last year, the average
annual growth of consumption in 2001 was still 2.8%.
Furniture consumption peaked in the last quarter of 2001 but for the
year as a whole, it remained at its prior year's value of US$ 64.1 billion. During the
first quarter of this year, furniture consumption fell slightly. The decline is likely to
be counterbalanced by a modest advance during the remainder of this year. Therefore, we
believe that the market value in 2002 will again remain at par with the ones of the
previous two years (US$ 64.1 billion evaluated at retail prices). Next year, some positive
growth of approximately 3.6% will resume, finally bringing the American furniture market
to a new peak of US$ 66.5 billion.
Office Furniture
After growing at a brisk rate in 1999, 2000, and the first half of 2001, the US economy
slowed down considerably. Growth turned negative in the second and third quarter of last
year but toward year-end the US already started to pull out of what now looks like a short
and mild recession. Nevertheless, growth will stay slow before picking up to a faster pace
in the second half of this year. Growth for this year as a whole is predicted at 1.7% and
3.2% in 2003.
Corporate profits are the weakest link in the US economy. After growing 8.9% in 2000,
they fell 18% last year. The first quarter of 2002 remained in the red territory. In view
of corporations' poor profitability, investments in machinery and equipment - which
includes office furniture - have been sharply curtailed.
After growing at a stellar rate of 11.2% in 2000, investments shrank by 4.4% last year
and a further decline of 2.1% is expected this year.
As corporations have now reduced most of their excessive inventories, positive profit
growth may resume in the months to come. For this year as a whole growth is predicted to
be in the vicinity of 9% followed by 12.5% next year. In the wake of better profits,
businesses may step-up investments in the second half of 2002. While this year's
investments will remain below the previous year's level, growth in 2003 may be much higher
at an anticipated rate of 8.1%.
The value of office building construction reached a record US$ 47.6 billion in 2000,
but fell to US$ 41.9 billion last year. Still, there is no problem finding office space.
The average national vacancy rate at downtown locations is - at 11% - relatively high,
particularly in Dallas (24.4%) and San Francisco (14.9%). On the other hand, office space
is quite scarce in Washington (4.7%).
Employment growth in the USA stood at a dismal 0.2% in 2001 compared to 2.2% in 2000.
During the second half of the year it was even negative. This year, growth may be
marginally better. In fact, in February the United States witnessed the fist job gain
since July 2001, mainly in the service industry with its strong office-related employment.
Employment growth for this year as a whole may come in at a rate of 0.5%. A better rate of
about 1.8% is predicted for 2003.
Under the described scenario, it is no surprise that business spending on furniture
declined radically. From its peak in the 2nd quarter of 2000 to its trough in the 1st
quarter of 2002 office furniture consumption fell by 24%. In 2000 the American office
furniture market (at retail prices and including recycled furniture) stood at US$ 42.1
billion, which was an all-time record but it fell to US$ 37.0 billion last year. Even
though business investments in furniture is now on a modest increase, this year's market
value - estimated US$ 33.5 billion - will be again lower than in the previous year. Growth
in 2003 will be about 4.3% lifting the market valuation to US$ 35.0 billion. This would be
still below the value of 1998.
Trends in Canada
Household Furniture
Real disposable income of Canadians (after taxes and after adjustments for inflation)
is slowly reversing its long-lasting decline. Growth in 2000 stood at 3.5%, and fell to
2.3% last year. Presently it stands at only 1% (expressed as an annual rate). We believe
that the first quarter of this year has reached the low point. With the employment market
improving, we expect that personal income growth for 2002 as a whole may come in at a rate
of 2.7% followed by 3.1% next year.
The housing market escaped the economic slowdown, mainly as a result of historically
low mortgage rates. In each of 1999 and 2000 some 150,000 new units have been started.
Last year this number increased to 163,000. In fact, the fourth quarter of 2001 saw the
biggest increase in housing activity in more than five years. Even though a modest decline
is expected for this year and next, new housing starts will likely remain at or slightly
above the 160,000 mark.
Aided by a series of nine interest rate cuts by the Bank of Canada last year as well as
cuts in personal taxes, consumer confidence remained fairly good. Indeed, healthy consumer
spending helped to avert a recession in Canada. Consumption last year grew by 2.5%
compared to 3.6% in 2000. Growth for this year and next will likely remain in the 2% to 3%
range.
The durable-goods consumer sector - which includes furniture - is much more volatile.
Growth averaged 6.4% in 2000 and 4.2% in 2001. Growth plunged into the negative territory
(-4.6%) during the third quarter last year. This created a catch-up demand in the forth
quarter, catapulting growth up again by an astounding 25.4% during the last quarter of
2001 (all figures are expressed at annual rates). While durable-good consumer spending may
remain weak (and possibly decline) during the first half of this year, we are confident
that it will accelerate thereafter. For this year as a whole, we predict a growth rate of
3.7%, followed by 3.1% in 2003.
Furniture consumption fared better than the overall durable-goods consumer sector. On a
year over year basis, the Canadian residential furniture market never suffered a decline
since 1996, even though there were a few short periods of quarterly declines.
In fact, furniture dealers experienced the best quarter in more than a decade during
the last three months of 2001.
Analysts at AKTRIN believe that the positive trend will continue, albeit at a somewhat
slower pace. Growth of furniture consumption in 2001 amounted to 6.2%. This year, it may
reach 5.7% followed by 4.6% in 2003. Applying these growth figures, the market value will
climb from CUSC$ 7.4 billion in 2001 to C$ 7.9 billion this year and C$ 8.2 billion next
year
Office Furniture
After growing at a 4.4% annual rate in 2000, the economic pace in Canada slid rapidly
and even turned negative in the 3rd quarter last year. Average growth for 2001 as a whole
came in at 1.5%. The first half of this year will be only marginally better but growth is
expected to speed up thereafter to a projected rate of 2.0% for this year and 3.2% for
next year.
The fairly positive consumer sector of the economy is not paralleled by the business
sector. Profit growth for 2001 was negative at 6% after a stellar performance of 22% in
the previous year. It is feared that this year may remain in the red with a rate of -4.9%.
However, if companies undertake the necessary rationalization measures, profit may be
again in the black territory next year, at a rate of about 12%.
In 2000, capital investments still grew at a healthy rate of 8.1%. The situation has
changed dramatically last year. Capital spending in Canada posted its first annual decline
of 0.7% in nearly a decade. Business investments plunged by 23% in the fourth quarter of
2001. While we will continue to see negative growth for the next few months, it is to be
hoped that the decline will reverse itself as we move through 2002. Investment growth for
this year as a whole may come in at 1.1%. Not everybody is affected by the investment
slump. Some industries are substantially raising their capital budgets. The office
intensive financial sector is predicted to increase investments by 7.3% this year,
following a decline of 5.8% in 2001. A further boost of 12.1% is expected in 2000.
Governments, too, are planning to increase spending by 8.2% or USC$ 18.6 billion.
Investment spending will remain slow in four provinces. Alberta which registered the
biggest gain in 2001 is now expected to record the biggest decline. Other provinces facing
declines are Manitoba, Newfoundland and British Columbia. Saskatchewan will likely be the
growth leader this year.
The continuing weakness of corporate profits is hampering commercial construction. It
is predicted to fall by 5% to USC$63.4 billion in 2002. However, the slow addition of new
office buildings is not likely to hamper the expansion of office space. The national
office vacancy rate at downtown locations is increasing and standing now at a comfortable
7.3%. Only in a few cities - such as Ottawa with a vacancy rate of only 1.7% - is office
space in short supply
Employment growth is a key indicator for the office furniture market. In 1999 and 2000
the Canadian economy created some 350,000 jobs in each year, representing an average
annual growth rate of about 2.7%. This good performance has not been repeated in 2001.
Only 143,000 jobs have been created which is equivalent to a growth rate of only 1.1%.
This year started on a better note with fairly good employment gains during the first
quarter. The picture was particularly rosy in Ontario. Nevertheless, with industry
remaining in a rationalization mode, this years' overall employment growth will probably
not surpass the 1% mark or some 130,000 new jobs. The sky may be a bit brighter next year.
Employment growth is expected to be about 1.8%, representing 233,000 new positions. A
negative point for the office furniture industry is the weak job market in the public
sector.
Canadian office furniture purchases by businesses were very strong at the beginning of
2001 but dropped steadily throughout the year. Only due to the healthy showing during the
first quarter of 2001 did the market value for the year as a whole remain - by a scant
0.17% - above the value of the previous year. Fortunately, the slide in 2001 has now been
reversed but growth will be sluggish for the remainder of this year. In fact, it is
predicted that the market value in 2002 will be close to 7% below last year's value.
Growth next year will be stronger at approximately 5.2%. If our growth figures are
translated into dollar terms, the market value (expressed at retail prices and including
recycled office furniture) will fall from C$ 4154 million in 2001 to C$ 3870 million this
year and rise to C$ 4072 million next year. Thus, 2003 would still be below the previous
peak value of C$ 4147 million reached in 2000. |
