Statitiscally Speaking: It Took Rising Inflation to Finally See Furniture Industry Price Growth

March 24, 2022  by HFBusiness Staff in Business Strategy, Industry   

The U.S. Personal Consumption Expenditures (PCE) price index for all consumer spending in total goods and services rose in 2021 at the fastest pace since 1981, 5.8%. The better-known consumer price index (CPI) jumped by an even higher 7%, roughly 5% higher than the Federal Reserve considers a healthy annual inflation close to 2%. The Fed views the PCE index—the core rate in particular—as the most accurate measure of U.S. inflation. It is more comprehensive and takes into account when consumers substitute cheaper goods for more expensive ones, among other things. (See Figure 1: Definitions).

As shown in Table A, up until 2021, furniture and bedding products were worth less than in 2012, and growth came through selling more product at a cheaper price with imported goods adding the pressure.

Consumer spending on furniture and bedding products increased 21.9% in 2021 over the previous pandemic year (Table B). In terms of chained dollars (2012 base year), the industry grew 13% - inflation pushing current dollar growth 8% higher. (See Figure 1. Definitions). In 2015 through 2017, current dollar growth could not keep up with chained dollar growth. The deflation really began to make a mark in 2016 with furniture industry current dollar growth of 6.7% compared to 9.2% for chained growth, forcing companies to sell almost 50% more to make up for the falling prices.

While annual 2021 produced major growth in consumer spending for furniture and bedding, sales dipped down by the end of the year. In January of last year, furniture industry sales jumped 17.4% over the preceding December 2020. March, August and October also showed monthly growth – 8.4%, 4.2% and 3.3%, respectively. However, consumer spending slowed in November, down 1.3% over October and fell significantly in December, down 7% compared to November (Table C). As shown in Table D, furniture is the fastest growing home furnishings product with consumer purchases well over $100 billion compared to all other products in the same category.

Among electronics, consumer spending on computer software and accessories steadily increased an average of 12.6% from 2016 before pandemic demand and inflation pushed spending higher to 18.2% in 2021 to $135 billion (Table E). The pandemic also pushed increases in consumer spending on slower-to-grow categories – major household appliances, televisions and personal computers/tablets – above 18% from 2020 to 2021.

Figure 2 summarizes the growth in consumer spending among selected major furniture and home furnishings categories over the last three years add a column to reflect inflation in 2021 (December 2021 over December 2020). Furniture, along with carpets and other floor coverings, were the best performing of the home furnishings categories, both increasing 21.9% in 2021. However, all other categories also experienced double-digit growth above 15%. Furniture products were also hit the hardest with inflation at 13.8% in 2021, partially explaining the high growth. No other home furnishings broad category was close to that number in terms of inflation. (Note: Year-end Inflation is usually calculated as December over prior year December, in this case December 2021 over December 2020, 13.8% for the furniture industry. However, furniture industry average annual monthly inflation in 2021 was 8%.)

How did furniture growth and inflation compare to other consumer products? Figure 3 shows that durable goods, including furniture, were the economic workhorses of the pandemic. Consumer spending on services had led economic growth since 2015, outpacing spending growth on both durable goods and nondurables. However, during the pandemic shutdown in 2020, consumer spending on services dropped 6.7% and grew the slowest of the three main sectors of the economy – durable goods, nondurables (including food and energy) and household consumption of services (Figure 3). The drop in 2020 in services spending was not entirely the consumer’s choice as restaurants, theaters, sports arenas, and travel closed for a significant period. However, many consumers have been slow to return those services. Inflation for gasoline and other energy goods was highest at 47.9% as well as 22.8% for motor vehicles.

Quantity Index vs. Price Index The falling prices and deflation experienced by the furniture industry coming out of the Great Recession only started to recover last year as inflation began to impact furniture and most other consumer products. Without growing price support, the quantities needed to maintain annual growth have skyrocketed.

Figure 4 depicts how since 2021, the quantity index of furniture items sold grew at twice the rate (2.0) compared to price growth. Reading the table for furniture, a quantity index of 209.5 means that quantities of furniture purchases have increased 109.7% between 2012 to 2021 (2012 index=100). Conversely, prices are only 2.3% above 2012 levels, and this just happened in the last year 2021. But furniture has fared better than all other home furnishings broad categories. The television industry is an example of one of the hardest hit electronics categories experiencing exploding price deflation falling 73.3% 2012 to 2021. The rate of growth in quantities sold versus price increases for selected home furnishings and electronics is shown in Figure 4. Product sales growth is a combination of the increase (or decrease) in prices plus the increase (or decrease) in quantities sold. (Note: Year-end inflation is generally reported December over previous year December. Comparing quantity and price indexes requires averaging monthly indexes to reflect the impact for the whole year.)

Deflation (falling prices) continued for the furniture industry coming out of the Great Recession until 2018 when inflation picked up 0.1%, finally closely matching the quantity index to current dollars (Table F). The price index hovered above 2% from 2018 to 2019 and was 0.1% from 2019 to 2020 before exploding during the pandemic. In 2021, the quantity index (13%) paired with inflation/price index (8%) pushed current consumer spending on furniture to a 21.9% growth.

Pricing remained relatively steady for carpets and other floor coverings after 2013 (Table G). Current dollars kept up to the quantity index with very little change in the price index. The pandemic pushed the price index up 2.6% from 2020 to 2021, increasing current dollars by 21.9% with a quantity index of 18.9%.

After a negative price index through 2018, consumer spending on major appliances began to improve. Current dollars rose by 9.9% from 2019 to 2020 and another 18.8% following the start of the pandemic. The price index reached 10.8% from 2020 to 2021 (Table H).

By far the hardest hit from falling prices before the pandemic is the television category (Table I). The price index dropped to as low as -19.6% in 2016 and the quantity index reached as high as 31.2% in 2019 with current dollar growth at only 5.8%. Inflation has helped the pricing gap for televisions. From 2020 to 2021, quantity index was 12.4% and 5.8% from the price index pushed consumer spending to 18.8%.

Compared to other home furnishings products, inflation has given the furniture category a big jump in pricing last year. The category of clocks, lamps, lighting fixtures, and other household items suffered from a negative price index (deflation) up until last year. In 2021, consumer spending grew 21.4% alongside a quantity index of 18.1% and just 2.8% on the price index (Table J).