AFMA Forecast In Brief The National Economy

Furniture World Magazine

As the economic engine behind a decade of growth begins to slow down, there are plenty of signs that suggest a soft landing can be accomplished. The stock market drubbing has sapped business expansion and consumer perceived "wealth. " Oil is still expensive and an early winter will put even more strain on low oil inventories. Still, inflation is in check and the unemployment rate is very low. Chairman Greenspan's early Christmas present was a hint of an interest rate cut in January, very welcome news on Wall Street and Main Street. Gross Domestic Product (GDP) is expected to expand by over 5%, adjusted for inflation, for 2000, the highest rate of growth in four years. Slower growth from mid-2000 to mid-2001 will result in only 3.6% real growth for 2001; a 3.8% rate is expected in 2002. The AFMA econometric model of the furniture industry is based on the current economic outlook for the U.S. economy, which is prepared by the Research Seminar in Quantitative Economics at the University of Michigan. The unemployment rate will remain in the low 4% range over the next two years while consumer price increases will not exceed a 3 % annual rate before the middle of 200 1. The Housing Marke Housing is a key sector of the economy and plays a major role in stimulating furniture demand. New homes sales and turnover of existing homes pump up furniture sales, both first-time and replacement. After a large dip in housing starts through the summer of 2000, further reductions are expected through the first quarter of 2001. Housing starts are expected to contract 3.0% for 2001, but only decline 1. 3 % the following year, totaling 1. 5 18 million units. The housing resale market has been on a roller coaster ride during the past year. For 2001, 4.897 million existing single-family homes are expected to be sold, a falloff of 1. 9 % from 2000. The total for 2002, 4.865 million, will be just below 200 1, down by 0. 6 %. Personal Disposable Income The current national economic scenario does not assume any major tax cuts or initiatives. For the next couple of years, there will be substantial growth in real disposable income, 3.7 % in both 2001 and 2002. Consumer Prices We can look forward to another year of well-behaved consumer prices, up only 2.2% for 2001, compared with this year. However, during 2002, consumer prices will begin inching up in the 3.0-3.2% range, higher than recent memory. By looking at your shipments in each quarter, compared to the total industry over the year, you can calculate your market share. You can find your market share also by looking at the printouts from the AFMA monthly business report, which has a market share section, for those who participate in the survey. In the table, you can see how you have done over the recent past. You can take the average market share over the past and multiply this times our forecast for the future. Assume, for example, that you are a manufacturer of upholstered furniture, and that in looking at historical data, or the monthly business report, you have determined that you have about 1 % of the market. Looking to the future, during 2001, you would see that if you continued to ship at your 1 % rate, you would ship about $29.06 million in the fourth quarter, and $111.8 million for the year.