Statistically Speaking: Storm Clouds Overhead as Industry Slows

July 18, 2022  by HFBusiness Staff in Business Strategy, Industry   

In 2020, when stores reopened and furniture retailers had to play catch up, growth exploded at 20.7% in the third quarter (Table A). Furniture and bedding industry sales increased each quarter before growth slowed over the last quarters. Sales have stayed roughly $40 billion since the second quarter of 2021.

Economic Indicators Worrisome
As shown in Table B, the feds fired a warning shot during the first quarter of this year when the GDP fell 1.4% over the fourth quarter of last year. This is first decline since the pandemic. GDP Update: An early forecast by the Atlanta Federal Reserve keeps GDP for the second quarter at 0.9% growth just above recession level, which is generally defined as negative growth in two consecutive quarters.

Consumer purchasing power has declined each year since 2019 – falling a total of 13.1% from January 2019 to April 2022. Half of the decline (-6.5%) occurred during 2021 (Table C) as inflation took over. Consumer Purchasing Power Update: May numbers fell an additional 1.2% over April.

Consumer confidence was riding high in 2019, averaging 128.3 for the year (1985=100) according to The Conference Board’s Consumer Confidence Index. That confidence carried over into January and February of 2020 (Table D) at 132.6 prior to the bottom falling out when the Covid-19 pandemic hit. During the first 11 months of the pandemic, confidence levels wavered between 85 to 97 before the consumer began to feel confident again. But since January of this year, consumer confidence has declined from 111.1 to 106.4 in May.

 

After years of falling prices, the furniture industry welcomed price increases that were justified by supply and demand and then by steady inflation (Table E). With prices slowly rising throughout 2019 and 2020 (0.1% to 0.2%), in 2021 prices exploded more than 1% a month. However, as of April 2022, the rate cooled to less than half a percent a month (0.4%). CPI Update: Furniture and bedding prices fell 0.2% in May over April.

The amount of price growth from January 2019 to April 2022 differed by specific furniture and home furnishings product (Table F). The living room, kitchen, and dining room furniture category, other furniture category, major appliances and window coverings all jumped over 25% in price. Prices of bedroom furniture increased 16.8%, while clocks, lamps, and decorator items increased 14.2%. Televisions, a category that has been declining in price for a few years, decreased 20.5% in 2019 and continued to fall into this year. CPI Update: Prices fell in May over April for all Table F categories, except for the broad category of Living Room, Kitchen, and Dining Room Furniture as well as nonfurniture products of Floor Coverings; Dishes and Flatware; and Nonelectric Cookware and Tableware. One-month declines were less than 1%.

Soaring Industry Prices Cool
As shown in Table G, the price spike in 2021 for most furniture and appliance products has waned in 2022. In 2021, total furniture and bedding prices jumped 13.8% and in 2022 the growth is 4.6%. Major appliances experienced its heavy price growth in 2020 (16.6%) and has remained steady – increasing by 8.4% in 2021 and 8.0% in 2022. While television had price increases during 2021 (4.4%), those numbers have quickly fallen again in 2022 – down 5.1%

Among select home furnishings products, growth for floor covering is up 4.8% in 2022 compared to 6.8% in 2021. Window coverings growth is cut in half from 12.9% in 2021 to 6.2% in 2022. Clocks, lamps, and decorator items have actually strengthened momentum – increasing prices another 7.3% in 2022 after increasing 5.9% in 2021. Dishes and flatware hit the price hike in 2022 – jumping 9.1% by April (Table H).

Imported Goods Rebound
The wholesale price increases on imported goods were less than half the inflation seen at the retail level in 2020 and 2021. In 2021, price growth for both imported upholstered household furniture manufacturing and imported nonupholstered wood household furniture manufacturing was less than 5% compared to the 13.8% for U.S. retail sales of furniture and bedding (Table I). But for the first three months of this year, wholesale price increases have kept up with U.S. retail inflation for imported nonupholstered wood furniture, but is flat for imported wholesale upholstered household goods. Import Prices Update: Wood furniture import prices continued to increase slightly in May over April (0.1%), and upholstered furniture prices declined (-0.1%).

Imports from China had been declining until last year when they grew 21.48% over the pandemic-ridden 2020. However, 2021 imports of $15.8 billion are still under 2015 levels of $18.4 billion. Imports from Vietnam have been increasing over the last few years – now 25% of total import sales and up 79.7% in 2022 Q1 versus 2021 Q4. With supply chain issues, imports from Mexico ramped up in 2021 – up 44.6% over the past year (Figure 1). Furniture Imports Update: The prices of total furniture product imports fell 1.6% in May over April. All key countries shown in Figure 1, declined in product prices, except for China, up 2.6%, and Italy, up 23.6%. Significant price decreases over 10% were seen from Mexico, Canada, and Indonesia.

Housing Market Cools
The red-hot housing market of 2021 began to cool this year as existing home sales fell 3.04% in March over February and another 2.43% in April. New homes sales fell more dramatically – decreasing by 10.5% in March and 16.6% in April. Meanwhile the new housing prospects for the future cooled as housing starts fell 0.23% in April and housing permits decreased by 3.19%. However there is a bit of help on the way as construction of new units continues to grow – up 2.09% in March and 1.61% in April (Table J). Housing Update: May data was not yet available for new home sales, but three other key indicators fell – existing home sales (-3.4%), housing starts (-14.4%), housing permits (-7%). New houses under construction grew slightly, 0.4%.

As shown on Table K, existing home sales reached 6.5 million in January before dropping each month to 5.6 million in April. New Home Sales also peaked in January at 845,000 before falling to 591,000 in April.

While housing starts and permits are higher than a year ago, they have slipped as of April to 1.724 million and 1.819 million respectively. As stated before, there is boost of new construction with 1.641 million units under construction as of April.

During most of 2021, mortgage interests were very low and added to prices soaring. In August of 2021, a 30- year fixed rate was down to 2.84%. As of late June, rates were up to 6% with promises of higher hikes. The darkening clouds appear to have set in for now. Leading up to this summer, employment gains, increasing wages, and business investments were thought to be enough to hold off a recession. By the time this issue of Statistically Speaking “hits the readers’ hands”, the picture will be clearer. Regardless, as the U.S. economy tries to right the ship, the furniture industry must dig in and not be taken by surprise.