Aktrin: 2006 U.S. Consumer Spending on Furniture to Grow 5.9%

September 12, 2006  by in UnCategorized   

By Home Furnishings Business in Furniture Retailing on September 2006 Canadian research firm Aktrin predicts that U.S. consumer spending on household furniture will grow 5.9 percent in 2006 compared to last year.

After a 4.7 percent increase in U.S. furniture consumption in 2005, Aktrin predicts that that the market will grow to around $84 billion this year. Next year, Aktrin anticipates a slower growth rate of 4.3 percent, which would equal around $87 billion at retail.

Personal income growth is one of Aktrin’s most important leading indicators for predicting furniture consumption. Helped by increased job creation last year, personal income may hold up better than the economy as a whole. Income growth stood at 5.2 percent in 2005, and probably will accelerate to 7.1 percent this year. In conjunction with less robust employment growth in 2006, however, Aktrin believes income growth may slow down a bit next year, but believes personal income growth will remain above the 5 percent mark. Accounting for inflation and taxes, the anticipated growth rate of real disposable income will be much less, that is only about 3 percent this year and 2.7 percent next year--still a respectable rate compared to the 1.2 percent increase in 2005.

Real GDP grew at a healthy rate of 5.6 percent (annualized, seasonally adjusted) in the first quarter of 2006. This positive picture changed significantly in the second quarter, with a growth rate of only 2.9 percent. While Aktrin said second-half growth may fall below 2.5 percent, due to the good showing at the beginning of 2006, average GDP growth for this year as a whole may lie around 3.5 percent, higher than the 3.2 percent rate in 2005. The average rate next year may be only around the 2.7 percent mark, which would be the lowest during the past five years.

Growth of American consumer spending stood at 3.5 percent last year, according to the Aktrin report. Due to higher interest rates, it will lag behind the growth of personal income, and probably fall below 3 percent in 2007.

The durable consumer goods market is subject to erratic fluctuations as such goods are quite sensitive to interest rates. After growing at 9 percent in the third quarter of 2005, it fell by a staggering 12.3 percent in the last quarter, only to rise again to 19.8 percent in the first quarter of this year (all rates are annualized). The average annual growth of durable good consumption last year amounted to 5.5 percent. It will grow only at an estimated 4.7 percent in 2006 and decline further to below 3 percent next year.

Thanks to low mortgage rates, residential construction was a very strong sector of the American economy in 2004 and 2005. The value growth during those two years amounted to 9.9 percent and 8.6 percent, respectively. The housing market is now oversupplied and is predicted to suffer a 2.1 percent decline this year and an even larger decline of close to 5 percent next year. In volume terms, this translates to 2.07 million new housing units in 2005, but only an expected 1.88 million in 2006.