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The N.American Household Furniture Market

¡¾Feb.18, 2002¡¿

United States

The American economy is not performing well. The unemployment rate climbed to 4.7% in 2001 from 4.0% in the previous year. The rate may climb further to an expected level of 5.2% in 2002.

Growth of average weekly earnings dropped from a rate of 3.8% in 2000 to a mere 2.8% in 2001. However, thanks to extensive tax cuts, real disposable income suffered less. Surprisingly, due to healthy gains early in 2001, the average income growth for the year as a whole stood at 3.7%, slightly above the average growth of 3.5% in 2000. As no further tax reductions are expected in 2002 and as economic recovery may not start before the middle of this year, real disposable income growth for 2002 will be at a much lower rate of approximately 2.0%.

The negative impact of sagging employment on consumer confidence is unmistakable. Consumer spending has suffered a marked decline since the middle of 2000. Growth stood at 4.8% in 2000 and fell to 2.7% in 2001. In fact, growth during the second half of 2001 and probably again in the first quarter of 2002 was and will be near or below zero. Some recovery is expected after the first three to four months of this year. Growth for consumer goods for 2002 as a whole may come in at 1.9%.

Massive interest rate reductions throughout 2001 have helped the housing market to maintain some of its momentum. Starts in 2001 stood at 1.59 million units, up from 1.57 million units in the year before. This however is still substantially below the record year of 1999 with starts of 1.64 million units. In 2002, starts are expected to decline a bit to an estimated number of 1.56 million units. The relatively good performance of the housing market is a good omen for the furniture industry. It is proven that new homeowners spend more than three times as much on furnishings within the first year of their home purchase than established home owners.

Spending on household furniture reached an absolute peak in the third quarter of 2000 from where it stared to slip. While the initial decline was moderate the drop in the final quarter of 2001 was severe. The first quarter of 2002 may see still lower consumption figures. Furniture purchases of an estimated US$61.6 billion (at annualized rates, evaluated at retail prices) in the first quarter of 2002 will be more than 5% below the peak of US$64.9 billion in 2000. It is to be hoped that a recovery will take hold toward the middle of this year. However, it will not be before the end of 2003 that the previous peak of 2000 will be toppled.

The furniture market as of 2001 stood at US$63.1 billion, that is 1.2% below the value in the previous year. The average market value for this year is estimated to come in at US$62.2 billion and at US$64.4 billion in 2003. This represents annual growth rates of -1.8% and +3.6% respectively. As prices for furniture are fairly stable, the quoted growth rates are real (in volume terms).

Canada

Canada's economy is suffering but the situation is less severe than in the USA. Recovery in Canada will be less pronounced and probably later than south of the border. The unemployment rate moved upwards from an average of 6.8% in 2000 to 7.2% in 2001 and it may go as high as 7.9% this year.

So far, the housing sector has been performing very well. Last year, 158,000 new units have been built, up from 152,000 in 2000. In October of 2001, the figure reached an astounding 173,500 units (on an annualized basis). Construction was mostly in the form of multiple-unit buildings. In addition to new house construction, renovation activities are also running at a fast pace. In spite of record low mortgage rates, this excellent performance will not be repeated this year. In fact, the number of new housing units in 2002 may fall to only 149,000.

In line with the economic decline, real disposable income of Canadians is also slipping. In spite of several federal and provincial tax cuts, income grew only at a rate of 2.1% last year. This compares to a growth rate of 3.6% in the previous year. Only a modest improvement is expected in 2002, with an anticipated growth rate of 2.3%. Consumer spending remained fairly strong at the beginning of 2001, but while the year progressed, consumers' confidence became affected by the general downward spiral. Nevertheless, consumer spending declined by less that the economy as a whole, slipping by only 0.3% on an annualized basis in the third quarter of 2001. Spending on durable consumer goods weathered the economic downturn still better. Consumers went on a spending spree for audio-visual equipment, including furniture for TV, video, and home-theater sets. While growth of durable consumer spending in 2001 did not mach the 6.4% rate of 2000, last year's growth of 3.0% is still quite respectable. This year, however, the rate will be much less, that is an anticipated 1.6%.

Household spending on furniture followed a similar path as overall spending on durable consumer goods. The positive trend of 2000 expanded into the early months of 2001. In fact, the first quarter of 2001 set an absolute record for furniture spending. Even though spending began to decline moderately in the second quarter of 2001, the stellar performance at the beginning of the year made it possible that furniture consumption for 2001 as a whole still exceeded furniture consumption in 2000 by 4.9%. In value terms, the Canadian furniture and bedding market reached C$7357 last year.

The declining trend of furniture consumption in Canada has not yet fully run its course. However, we believe that the first quarter of 2002 will represent a low-point, with furniture purchases about 0.3% below the year-ago level. For 2002 as a whole, consumer spending on furniture may topple the 2001 figure marginally (+0.3%) brining the overall market value to about C$7529 million. Growth may accelerate in 2003 to an anticipated rate of about 4.6%. If our prediction is correct, the market would climb to a value of C$7876 million in that year.