The Price of a Dollar

October 31, 2008  by in UnCategorized   

By Home Furnishings Business in on November 2008 Sourcing decisions are based on a variety of factors, including product style, availability, variety, quality and cost. What may not show up initially is the hidden cost of foreign exchange rates and how they affect the furniture market.

One thing that’s certainly not a surprise is how furniture imports into the U.S. have skyrocketed in recent years. From 1999 to 2007, total furniture imports of upholstery, case goods, metal furniture, other furniture and bedding jumped 125.5 percent, from $8.6 billion to $19.4 billion.

In contrast, exports of U.S. furniture in these five product categories grew just 37.0 percent, to $2.2 billion in 2007 from $1.6 billion in 1999.

These numbers, based on data from the U.S. Department of Commerce and the U.S. International Trade Commission, are in current dollars, reflecting the foreign currency exchange rates in effect during each period.

During those years, the U.S. dollar was losing in strength versus many of the foreign currencies from countries most used as source countries for furniture products. For instance, the U.S. dollar lost nearly 32 percent of its buying power compared with the Canadian dollar. At the end of 1999, one U.S. greenback was equal to 1.44 Canadian loonies. By the end of 2007, the greenback was equal to just 99 Canadian cents.

The European Monetary Union euro also gained buying power, as the dollar lost 31 percent of its value measured against the euro. On the other side of the coin (pun intended) were the currencies of Japan, Mexico and Taiwan, all of which declined versus the U.S. dollar in the same nine-year period.

ONE FOREIGN CURRENCY BUCKING the trend is the People’s Republic of China yuan. From 1999 to 2007, the yuan lost ground, declining 11.9 percent versus the U.S. dollar. The weak dollar certainly contributed to the sharp increase in the number of imports from China, the U.S.’s No. 1 source for imported furniture.

The yuan is unique because its exchange rate is mandated by the Chinese government, not market conditions. Once pegged to the U.S. dollar, the value of the yuan is set by what is called a “market basket” of European currencies.

The two primary destination countries for U.S. furniture exports are Canada and Mexico. While exports to Mexico increased from 1999 to 2007, more recent export totals show either marginal growth or decreases. For example, case goods exports dropped 17.1 percent from 2006 to 2007. Metal and other furniture exports were off more than 13 percent each and upholstery exports were up a bare 1 percent.

As the U.S. dollar weakened, imports became more costly to U.S. retailers and exports strengthened as U.S. vendors had goods to sell at favorable prices.

DESPITE THE BELIEF OF SOME economists that the U.S. dollar has been gaining strength in recent months, it isn’t showing up in international furniture trade, at least so far. Furniture imports for the first six months of 2008 were down significantly from the first semester of 2007. Imports of upholstery declined 9.3 percent, case good were down 7.4 percent, other furniture fell 4.9 percent and bedding imports were off 4.1 percent. Only metal furniture imports increased, up 1.0 percent from 2007 to 2008.

These results are in sharp contrast to the comparable 2006 period, when imports gained across all furniture categories. It’s most likely weakening demand due to economic softness that is causing import totals to slide, not a strengthening dollar.

While U.S. companies importing furniture are feeling the pinch as product becomes more expensive, those vendors sending goods out of the country are seeing improved prospects as the weak dollar aids in making their product attractive to other countries.

In the first six months of 2008 compared with the same period in 2007, exports of upholstery increased 10.4 percent, case goods gained 18.8 percent, metal furniture was up 19.5 percent, other furniture products increased 20.5 percent and bedding products grew 13.1 percent.

These export results sharpen the contrast between imports and exports. If exports continue at their current rate, total exports for 2008 will increase 9.7 percent over 2007 results.

On the other hand, if imports continue at the same pace for the rest of 2008, total imports of the five product categories (upholstery, case goods, metal furniture, other furniture and bedding) will fall 5.0 percent, the first year-over-year decrease in furniture imports in more than 10 years.

The U.S. economy has taken a number of hits in recent months, from the slump in the housing industry, a huge credit crunch and the failure or merger of major financial institutions. While a stronger dollar hurts exporters, it benefits importers and the consumers who buy from them. HFB