Statistically Speaking: U.S. Furniture Manufacturers Feeling the Slowdown

January 27, 2024  by HFBusiness Staff in Business Strategy, Industry   

How Manufacturing Performed in 2023 Figure 2 summarizes the more current data from last year through October. This data highlights two time periods: (1) the first 10 months of 2023 compared to the same period in 2022, and (2) the most recent month-to-month comparison of October 2023 to September 2023 (one month). Shown are shipments, new orders, inventories, and unfilled orders for the two time periods. Also included are import numbers.

Over the last year, manufacturer’s shipments, new orders and inventories have slowed, and growth has been flat. Meanwhile over the year, unfilled orders are down 6.4%. This is against a backdrop of U.S. imports that were down 22.8% during the first 10 months of 2023 over the same time period in 2023. Data month-overmonth for the most current month (October versus September 2023) shows a similar picture with shipments and inventories down, but only slightly, and new orders up 1%. Unfilled orders growth is also flat. Meanwhile imports for October rebounded to grow 11.1% over September. Consumer spending has slowed, but for how long? And when it picks back up, will the consumer be forced to return to long wait times.” The road getting here has been interesting, with furniture manufacturers enjoying the backlog of consumer demand created during the pandemic. Table A shows that quarterly furniture and related products shipments peaked in the fourth quarter of 2022 at $20.78 billion but really began to slow in the second half of 2023, (down 2.9% by the end of the third quarter).

Along the way, U.S. manufacturers caught a break as foreign imports, Chinese in particular, struggled to keep supply chains up and running. Available data through the first three quarters of last year show foreign imports peaking at $15.4 billion in the second quarter of 2022 then ultimately falling over 30% to $11.01 billion in Q3 of 2023.

Monthly data in Table B details furniture shipments and imports December 2022 through October 2023, adding the extra month into the fourth quarter. For U.S. manufacturers, the final dip began in February of 2023 and has not yet recovered. Between January and October of last year, U.S. shipments fell 3.7%. Meanwhile, imports continued to struggle, falling 14.5% January to September last year, but rebounded 11.1% in October over September 2023.

Over the last 10 years, domestic manufacturers’ shipments of furniture and related products peaked in 2022 at $82.1 billion and are expected to be down less than ½ of 1% in 2023 (Table C).

The value of shipments began to decline in 2019 by 3.6% and fell further in 2020 by 5.8%. Shipments began to rebound in 2021 by 7.5% as shutdowns continued in China, and grew further by 8.5% in 2022. At the end of last year, domestic shipments were down 0.04% through the third quarter (Table D).

Also detailed in Table D is a comparison of the growth in manufacturers’ shipments to the growth in the producer price index for furniture 2014 to 2023 October. This graphic shows that until 2019, when inflation was low, manufacturers’ shipments grew faster than price increases/ inflation. However, the pandemic upended that trend somewhat. In 2021, when inflation surged, demand stayed high and ahead of price increases. Since that time, inflation has outpaced the growth in shipments, especially in 2023 when producer prices/inflation for furniture grew 4.5% while shipments have shown no growth October year-to-date.

Table D shows the annual dollar shipments since 2014 with preliminary estimates of $82.07 billion for 2023 yearend. Although not an exact apples-to-apples product comparison, the tables have turned for manufacturers and retailers when it comes to inventory levels. Throughout 2022 and the first half of 2023, furniture and related product manufacturers carried a much higher ratio of inventoryto-shipments compared to retailers’ inventory-to-sales ratios (furniture and home furnishings products) (Table E).

But by the summer of last year, retailers’ inventories stayed stable as manufacturers declined, with consumer demand eating into manufacturer’s inventories as imports dropped sharply. By October of last year, the ratio of inventories to dollar shipments for manufacturers was similar, 1.56X for manufacturers compared to retailers at 1.53X.

After unfilled orders increased consistently month-to-month throughout most of 2021, manufacturers began to whittle down the sizable backlog in 2022 and picked up more steam in the second half of last year. Coming out of the plant shutdowns in 2020, unfilled orders grew a total of 27.9% in 2021 and 3.8% in 2022 before going negative by 8% in the first 10 months of 2023. Table F details the reduction in unfilled orders.

In the years leading up to the pandemic (2018 – 2019), manufacturers’ monthly unfilled orders/backlog was mostly consistent at 130% of the value of shipments (ratio 1.3X). The ratio peaked in December of last year at 1.87X as unfilled orders approached double the shipment volume. In May of 2022, the backlog ratio dropped to 1.66X before popping up slightly to 1.69X in June (Table G).

New orders, the life blood of manufacturing, grew throughout 2022 finally peaking in January 2023 to a onemonth high of $7.01 billion. Then between January to July, new orders fell to $6.48 billion before rebounding in August of last year and growing monthly to $6.74 billion in October, the most available data at press time (Table H).

While manufacturers’ shipments grew consistently coming out of the Great Recession, the number of manufacturing establishments declined rapidly (Table I).

In 2011 the number of companies manufacturing furniture and related products totaled 18,985 before falling 7.2% over the next five years to a low 17,623 in 2016. A small two-year uptick that began in 2017 didn’t hold through 2019 and 2020 during the pandemic. But since 2020 the number of manufacturing establishments grew to 18,346 by 2023 Q2, an increase of 14% (Table I).

But while the number of stablishments was falling, employment was growing by 12.2% by 2012 to 2017 peaking at 93,100 employees. But by the end of 2018, employment was declining and has not recovered, even with the growth in establishments. Between the peak of 2017 and June of 2023, the most recent data, employment fell to 360,900 which is 8.2% below the 2017 peak.

Annual hourly wages for all furniture manufacturing and related product employees have increased every year over the last decade but the biggest gains were made in 2020, 2021, and 2022 growing 4.6%, 4.3%, and 4.8% respectively. In June of last year, average annual wages totaled $54,549 an increase of 1.35% over 2022. Wages last year were 39% higher than 2012. (Figure 3).

One of the major problems facing many U.S. industries is the slowing of worker productivity. And this is true as well for furniture manufacturers. (See Figure 4 for a definition.) The productivity index shown in Table K, indexed to 2015, indicates that over the seven years ending 2022, the most recent data, productivity has declined 10.5%. Meanwhile wages increased 26.8%.

In December of last year, the Feds announced that inflation was cooling and promised to reduce interest rates in several stages this year. Election years are usually stable for the economy. Yet with the turmoil of a contentious election coupled with international conflicts and a crisis deepening on our border, there could be surprises in store for the year. American Furniture manufacturers may also be sitting on pins and needles wondering if China will get its act together with imports and begin to take sizable share of the market away from U.S. manufacturers again.