Go to 1999's State of the Industry report

W&WP January 2000

 

The historic U.S. economic expansion promises to sweep along the many segments of the secondary wood products industry to record levels in 2000, according to industry leaders.

Record shipment levels are expected for the office furniture and residential furniture industries. Cabinet sales are projected to remain on par with 1999 sales, but an upturn is not out of the question. And, membership polls taken by the architectural woodworking association and the store fixture associations also predict a bullish 2000.

The positive prognostications are fostered by the record-setting U.S. economy which is expected to grow about 3% in 2000, following growth of approximately 4% in 1999.

The current economic expansion began in March 1991. "In February, it will become the longest economic expansion ever," said President Clinton Jan. 4, as he announced the renomination of Alan Greenspan as chairman of the Federal Reserve, a move applauded by many in the wood products industry. In February, the economy will have grown for 107 consecutive months. The old record of uninterrupted expansion was 106 months, set between February 1961 and December 1969, a period that included part of the Vietnam War.

Despite the positive projections for the new year, the economy has hurdles that it will face. For instance, the economic growth levels in 1999 and unemployment rates that dropped to a 26-year low in December may prompt Greenspan to increase interest rates as a means to check potential inflation when the Federal Reserve meets on Feb. 1.

Robert Murray, vice president for economic affairs for F.W. Dodge, a New York-based tracker of construction activity, says that it is a near certainty that the Federal Reserve will raise interest rates. "The generally higher cost of financing will exert a dampening effect on such interest-rate sensitive sectors as housing during 2000," Murray says.

F.W. Dodge projects that single-family house construction will drop by 4% in 2000. Demand in other building segments, such as multi-family housing and institutional-type buildings, are expected to be strong enough to overcome the potential rate hikes, however.

The wood products industry will also have to contend with an expected rise in hardwood lumber prices for the first half of the new year, a proposed ergonomics standard, an expanding trade gap and other issues.

Even considering this, most industry spirits remain undampened. Here is a more in-depth look at the major segments of the industry.

Home Furniture Industry Having its Best Run
"I have been in the furniture industry for over 30 years, and this is the best run I have ever seen," says new American Furniture Manufacturers Assn. president Ron Wanek of Ashley Furniture Industries. "I have talked with people all over the country, and it is rare where there aren't pockets of bad business. But that just has not happened over the last year."

AFMA expects home furniture shipments to increase 8.4% and hit the $25 billion mark for the first time. Consumer furniture purchases are also expected to rise. Wanek notes that the improvement of business in the Canadian market also bodes well for the industry. "Business in Canada has been good over the last six months, and looks to continue to improve," Wanek says. "That only means good things for the furniture maker."

Some concern exists regarding OSHA's proposed standards on ergonomics and worker safety, but Wanek added that the length and immensity of the proposal may make it difficult to comprehend and implement.

"I understand that the proposal is around 250 pages in length. I don't think the industry has had a chance to look at as in depth as it would like," Wanek says. "I am sure though that there are some things in there that are of concern. In our business, with the employment situation, we want to have workers in a position of good health. So we will have to take a very close look at the standards proposed and examine how they will affect business overall."

Wanek adds that there are other concerns within the industry, including the increase of furniture imports and rising material prices.

"The balance of trade is really, really bad, and that isn't just in the furniture industry, but among all products. There is an unbelievable amount of imports. But we are seeing it in furniture as well," Wanek says. "That could be a concern for many people, especially if there is a downturn. And with all the capacity that has been built in as a result of the economic boom we have seen, that could be a problem.

"Profitability is going to come under serious pressure," Wanek continues. "The price of fuel has gone up considerably. That, along with environmental pressures made on materials, could be a problem in the future. There is talk about taking a lot of federal land out of production. That in turn puts pressure on wood production, reducing supply. A lower supply of wood could be a problem because it has a trickle-down effect on the rest of the industry. There has been a lot of publicity on this, even on well-managed forest land. More restrictions in that area could push the industry backwards a little bit."

Office Furniture Set to Break Records
After a surprisingly lackluster 1999, office furniture sales are projected to springboard to record levels in 2000, according to the Business & Institutional Furniture Manufacturers Assn. -- International.

Coming off a record 1998, in which sales topped $12 billion for the first time, it looked like the office furniture industry was poised for another record setting year in 1999. Sales were flat, however, hovering at about the same level as 1999.

"It (1999) was a little surprising, considering the strength of the general economy," says Thomas Reardon, executive director of BIFMA. "We expected to do better."

Reardon speculates that some corporations diverted capital away from furniture purchases and put it toward Y2K computer fixes. With Y2K fears in the past, BIFMA projects sales in 2000 to grow by 4% to 6% and perhaps push the $13 billion mark.

"There are a lot of positive indicators that cause us to view 2000 with optimism," Reardon says. "The economy is still strong, full employment and corporate profitability projections are good. When we talk to design firms, they tell us that they are as busy as they can be, with more jobs then they can handle."

Another positive is the growing amount of office buildings, schools and various institutions under construction, according to F.W. Dodge numbers. While Dodge predicts a dip in this type of construction in 2000 compared to a strong 1999 construction year because of the forecasted interest rate hikes, the figures still represent an increase over 1998. At the end of 1999, office construction was especially strong, growing 19 percent in November over October, as a result of large-scale projects such as a $100 million project in New York, a $65 million project in Charlotte, NC, and a $55 million project in Needham, MA. Schools are another expansion area, projecting to grow by 20% in 1999, Dodge reports.

On the legislative front, BIFMA is continuing its fight to regulate Federal Prison Industry furniture sales and is working with the Environmental Protection Agency on a new metal finishing rule.

BIFMA is also working on standards as a member of the ISO Technical Committee 136, the international committee responsible for standards on office furniture. The committee has organized three working groups to write international standards and BIFMA was appointed to look into Office Furniture -- Work Tables and Desks.

In 2000, under BIFMA's new president, Jack Michaels of Hon Ind., the association wants to elevate the industry's visibility.

"We want make it more visible, spread the word, educate customer groups about the value of our product," Reardon says.

Cabinet Consolidations To Continue

KCMA Responds to Ergonomics Proposal Dick Titus, executive director of the Kitchen Cabinet Manufacturers Assn., has issued a response to the publication of OSHA's proposed ergonomics regulation. Titus says that under the regulation, one musculoskeletal disorder reported in a workplace requires employers to set up a comprehensive ergonomics program and compensate employees who are out of work recovering from an ergonomic injury at 90% pay and 100% benefits for up to six months. "The burden of all this on small business and all manufacturers is much greater than any estimate OSHA has produced," the KCMA's statement says. OSHA's proposal names "cabinetmaking" as one of nine examples of jobs covered by the regulation. Titus says the majority of cabinetmakers work in shops with fewer than 20 employees and the weight of the regulation will fall most heavily on small businesses that have the least flexibility to purchase new machinery and make changes to the manufacturing process. The statement also notes that "as a result of voluntary efforts by employers, the number of reported musculoskeletal injuries actually has shown steady decline in recent years."

 "We see from the forecasting and from what we can pick up from related industries -- home builders, forest products, in addition to overall stats -- that perhaps we'll see a little bit of a leveling off," says Dick Titus, executive vice-president of the Kitchen Cabinet Manufacturers Assn. "We see things staying at a very manageable level. Overall, 75 percent of our product goes into remodeling-type projects and that market, with full employment and solid economics, will be strong."

Titus says that the consolidations and mergers that have changed the landscape of the cabinet industry over the last decade may not be over yet. "There is a lot of strong competition in the industry. There could still be some more shakeout as well," Titus says. "We are seeing a weeding out process. With the consolidations, big corporations are exerting pressure on the mid-size companies. The number of small operations is also growing, which can sometimes hurt the middle-sized company.

"I think that as these consolidations occur, some people like to keep their businesses small and keep their own operation," Titus says. "But the larger companies are really weeding out the competitors that can't seem to garner much market share."

The surprisingly strong economy and record growth are fueling the continued expansion of the cabinet market. And though Titus notes that predictions call for a slight decrease in shipments in 2000, similar predictions for the last two years proved wrong.

"The market continued to be strong. I think there is a concern about the Fed and where interest rates are going to go. But if the market defies the predictions again, people will just say 'I told you so'," Titus says.

Titus says wood supply issues are among the cabinet industry's top concerns. "We're concerned about the availability of materials. That issue is of significant concern to all of our members. The ability of our suppliers to continue to harvest product is obviously going to impact the economics of our members," Titus says.

Newly proposed ergonomic standards by OSHA (see sidebar), as well as the difficulty in retaining quality workers have also been mentioned by KCMA members. "Ergonomics and other government regulations also are a concern. When the economy is going well, companies tend to focus more on the business aspect, but there are several environmental issues that we are keeping an eye on, as well as the availability of workers. This is almost becoming boiler plate, but with the economy, retention of skilled workers has become very difficult. I think that issue has moved ahead even of some of the regulatory issues."

AWI on a Growth Curve
A poll of board members for the Architectural Woodwork Institute reflects the potential for a strong year for sales in the diverse architectural woodworking industry.

For instance, 93% of AWI board members said that total sales were up in 1999, 71% percent said that profits were up, and almost half said that backlogs were increasing. While the number of board members is small, 28 in all, its makeup is pretty evenly divided across the country, which could indicate that sales may grow nationally, as opposed to on a regional basis.

New AWI president Bruce Cody's company, Architectural Wood of Roanoke, VA, is an example of how well the industry is doing. "My business ended on an upnote, we had the best backlog of orders we have ever had," he says.

AWI's membership base is also growing, according to Cody. Manufacturing membership jumped 11% from 681 to 757, while overall membership grew 16% from 2,160 to 2,505. "The economy is good, that is one reason that we have seen membership grow," Cody says. "Also, our quality certification program is attracting new members."

The quality certification program is part of AWI's strategic plan for growth which enters its third year in 2000. "We need to start looking ahead and update and review it," Cody says. He adds that the plan needs to continue to emphasize the individual side of being a member.

This idea is reflected in a program that AWI has scheduled during the International Woodworking Fair which will be held Aug. 24-27 in Atlanta. AWI plans to stage an "employee audit" that includes conducting mock hiring and exiting interviews and how to attract good employees to their businesses. "We want to show the building tools of employment," Cody says.

Strong Retail Market Bodes Well for Store Fixture Makers
"We really depend on retail," says Klein Merriman, executive director of the National Association of Store Fixture Manufacturers. "And as of now, the year 2000 looks great for the industry overall. The early numbers on holiday shopping were very strong. That bodes well for our industry."

Merriman adds that despite the increase in e-commerce and on-line buying, NASFM does not see the Internet as a threat to conventional shopping or retailing. "The biggest area where 'e-tailing' has had an effect is on the catalog market," Merriman says. "But it appears that companies that are 'click-and-mortar' companies, that have both online and actual store recognition, have performed better that just online companies.

"The association has talked about e-commerce, held seminars about it at conventions, but the industry continues to grow," Merriman adds. "I think that will continue. E-commerce is growing, but it makes up a small percentage of the overall sales 'click-and-mortar' companies have."

Merriman notes that the formula for growth in the store fixture market right now is simple: Choose the right customers.

"Companies right now understand how important it is to have a reliable store fixture supplier. The key for our members is to have a client that they can grow with," Merriman says. "If you can grow with your clients, you'll find that the company gets to a point that they can't grow without you. Reliability, on-time delivery and quality all attract that customer to come back again and again."

Though Merriman admits that it gets harder to reliably predict how the market will go, he is optimistic that companies will continue to profit from the booming economy.

"The first quarter of this year looks really strong. We were a little concerned that there would be a 'millennium effect' where companies would push to open stores by 2000, but we haven't seen that," Merriman says. "I did a small informal survey with a few members, and nine out of ten expected double-digit growth this year."