Wednesday, June 14, 2006

Forecast For Spending On Furniture & Bedding

According to AKTRIN, a reporting and consulting firm that specializes in the furniture industry, real GDP grew at a seasonally adjusted, annualized rate of 1.7% in the 4th quarter of 2005. This is the lowest rate recorded since early 2003. This – however – does not signify a fundamental weakness in the American economy. It was due to Katrina and an unusually cold December that took a toll on hiring and consumer spending. For the full year of 2005 GDP grew 3.5%.

Growth during the first half of this year stood at an annualized rate of 3.9%. It may slow a bit in the second half, averaging about 3.3% for the year as a whole.

Helped by an increase in job creation last year, personal income may hold up better than the economy as a whole. The growth rate stood at 5.5% in 2005. It will probably accelerate to 5.8% this year but – in conjunction with less robust employment growth in 2006 – it may slow down a bit in next year. Nevertheless, we believe personal income growth will remain above the 5% mark. If we take inflation and taxes into account, the anticipated growth rate of real disposable income will be much less, that is only about 3.1% this year and 2.8% next year. This is still a respectable rate if compared to the 1.5% in 2005.

Growth of American consumer spending stood at 3.6% last year. Due to higher interest rates, growth of consumer spending will lag behind the growth of personal income. It may remain above 3% this year but almost certainly fall below that mark in 2007.

The durable consumer good market is subject to erratic fluctuations as such goods are quite sensitive to interest rates. After growing at 9.3% in the third quarter of 2005, it fell by a staggering 16.6% in the last quarter only to rise again to 9.5% in the first quarter of this year (all rates are annualized). The average annual growth last year amounted to 4.4%. Durable good consumption will grow only at an estimated 1% in 2006 but recover a bit in 2007 if interest rates stabilize. The relatively low growth rate of durable consumer good spending is largely due to disappointing automobile sales. Excluding this factor, durable consumer spending would be noticeably higher.

Thanks to low mortgage rates, residential construction was a very strong sector of the American economy during the past two years. The performance in 2005 slowed down a bit, but at a growth rate of 7.2% (in value terms) it remained robust. The housing market is now oversupplied, and growth may drop to as low as 1.3% this year and probably suffer a decline in 2007. In volume terms, this translates to 2.07 million new housing units in 2005 but only an expected 1.89 million in 2006.

Furniture consumption in the USA was weak during the first three years of this century. After only one year with a strong growth performance of 7.9% in 2004, the market slowed down again to a meager 0.7% last year. In line with the advances of disposable income, we foresee a slightly better rate of 4.0% in 2006. This would bring the market value to about $ 82 billion this year.