AKTRIN's Monitor For American Consumer Spending on Furniture and Bedding:

Furniture World Magazine

According to AKTRIN, the Canadian based research consulting firm aktrin@aktrin.com , U.S. wages and salaries grew by a healthy 6.9% in 1999 and after tax-income advanced by 5.5%. This positive effect was further magnified by better job opportunities. Also, household wealth has been boosted by the buoyant stock market in 1999. The growth rate for wages and salaries is expected to accelerate this year to 7.4% and to 6.1% for after-tax income. Rising income, low interest rates, and a robust job market bode well for buoyant consumer spending. During the 1st quarter of this year, has showed only minor signs of easing. The increase for January to March of 2000 was 5.7% at annual rates, a hair under the 5.9% pace at the end of last year. The future is not entirely without concerns. In view of high consumer confidence, households are saving less and borrowing more to satisfy their wants. Purchases have outstripped income for the first time in five decades. This places some risk on interest sensitive big-ticket consumer goods, such as furniture. Any increase in interest rates would surely deflate the demand for durable consumer goods. More upward pressure on the price front will entice the Fed to step up its monetary restraint and introduce more interest rate increases. In addition to rising borrowing costs for consumers, this will slow home sales and deprive the furniture business from one of its most powerful driving forces. After 1.66 million new units built in 1999, we will likely see 1.56 million units built in each of 2000 and 2001. Another risk concerns the "wealth-effect" of the stock market. Higher interest rates may trigger a decline of stock prices and erode households' wealth and consumer confidence. As the number of people who participate in the stock market has grown significantly, the risk that a market decline could affect the wider economy has become more acute. Under the likely scenario of only moderate interest rate increases, the U.S. economy will not suffer a significant retardation. Housing starts will remain strong and the upward trend in wages will continue. While slower job creation may restrain consumer's income, consumption will remain strong. It is expected to advance by 3.6% in 2000, slightly higher than the 3.1% in 1999. The rate for 2001 is predicted to be around 3.4%. However, rising borrowing costs will moderate interest-sensitive spending on furniture and other big-ticket items. Furthermore, pent-up demand is no longer a driving force and will not provide a stimulus for furniture purchases. Furniture consumption will advance from $ 60.7 billion in 1999 to $ 63.7 billion this year. This represents a growth rate of 5.1%, down from 6.4% in the previous year. With inflation being low, most of the advance represents a "real" increase, predominantly in the form of more "deluxed" products and less in the form of higher unit sales.