Consumer Confidence Boosts Furniture

November 13, 2015  by in Business Strategy, Industry   

Consumer confidence is on the rise and with it the demand for consumer products, especially durable goods.

With an array of spending choices, the furniture industry has its eye on these more confident consumers. Several factors may finally be coming together to push home furnishings products ahead of other key consumer goods. The surge in new automobile sales may be slowing as consumers increase the length of car ownership.  Also, consumer spending on home electronics has flattened. Combine these trends with a surge in housing starts, and it may just be the furniture industry’s time to shine.

About 70 percent of the gross national product consists of consumer spending, and one of the prime drivers of spending is consumer confidence. The Consumer Confidence Index increased to 103.0 in September, up from the 2015 low in July of 91. The all-time low in confidence occurred in February 2009 when it fell to a recession low of 25.3, according to The Conference Board.

 

 

As shown in Table A, consumer confidence took a nosedive after a high of 103.4 in 2007—dropping to an average of 45.4 in 2009. Since the Great Recession, confidence in the economy has steadily increased a yearly average of nine index points—resulting in a total jump of 53.3 points from 2009 to 2015 year to date based on an annual average.

Consumer confidence, measured monthly by The Conference Board, is an economic barometer of the health of the U.S. economy from the consumer’s perspective. The survey asks consumers how they feel about the current and six-month future business climate, including the health of the local job market, and whether they see incomes rising or falling going forward. When the Consumer Confidence Index is released at the end of the month, stock markets can be impacted, as well as decisions made by the U.S. government concerning whether or not to raise interest rates.

A monthly look at consumer confidence over the last three years (Table B) shows the swings in consumer attitudes. 

 

 

The dip in confidence in July to 91 was a result of “the less optimistic outlook for the labor market, and perhaps the uncertainty and volatility in financial markets prompted by the (economic) situation in Greece and China,” according to The Conference Board.

 

Confidence and Employment

In a sense, the Consumer Confidence Index is a lagging indicator in response to several economic catalysts, among them the health of the U.S. jobs market, growth in wages, and the overall global political and financial climate.

Confidence tends to fluctuate more strongly than actual economic data. Table C graphs these economic catalysts.

 

 

More than any other indicator, consumer confidence tends to mirror the growth in personal income with the Consumer Confidence Index responding more sharply to economic downturns.

Employment bottomed out in 2010 at an index of 94.4—6 percent below 2007. (2007 = 100) Since then, the number of employed workers has increased by 8 percent and is currently at an index of 102.5. Personal Income stayed flat during the recession but quickly gained momentum after 2009 and has increased to 126.8 index, an increase of 26 percent.

 

Confidence and Personal Consumption

Consumer confidence is perhaps the prime external driver of consumer spending. Population and household formations form the base for growth in spending; however, consumer confidence drives demand, especially when it comes to durable goods. Table D shows the indexed growth of selected products.

 

 

New car sales follow a similar trajectory as consumer confidence with personal consumption dropping dramatically from 2007 to 2009, posting a decline of 29 percent, before climbing an average of 8 percent to a 2015 year-to-date index of 119.

Consumption of furniture and home furnishings followed a similar cycle. Home furnishings dropped 15.8 points in 2009, compared to 29 points for new cars. Home furnishings rebounded by 23 percent from 2009 to year-to-date 2015.

After peaking in 2008, the video and audio equipment industry experienced a slight downturn due to the recession but overall has been flat for the past eight years.

Confidence has a lesser impact on non-durable goods, like food and clothing, which tend to avoid the peaks and valleys of confidence swings more so than durable goods.

 

 

As shown in Table E, consumers may slow non-durable purchases but only significantly during periods of extremely low confidence.

 

Confidence and Housing

The other piece of the consumer spending pie is housing, especially new home sales. Economic conditions drive the homebuilding industry and once building slows, it takes a while for housing starts to catch up once the consumer starts to regain confidence.

New home sales plummeted alongside consumer confidence as the housing industry went bust during the Recession taking almost two years to bottom out after the confidence began to recover.

 

Table F shows a drop of 61 percent in new home sales from 2007 to 2011. As the confidence in the economy picked up, housing starts ignited and new home sales are now growing at a steady pace—posting gains of 68 percent from 2011 but still only reaching a 66.2 index in year-to-date 2015. Existing home sales also felt the effects of the drop in consumer confidence—declining to 74.1 index in 2010. Existing home sales were quicker to recover due to an already present housing inventory. 

A high confidence level of 103 in September gives insight into the attitudes of consumers today.

Despite a volatile stock market and concerns about the stability of the global political and economic climate, consumer confidence continues to grow thanks primarily to an improving U.S. jobs market. The consumer is not easily scared, but once uneasiness sets in, consumer spending quickly becomes the victim.