Slowdown, Yes; Recession, No
Most of the cabinetmakers surveyed by Wood & Wood Products see a soft landing for the economy.
By Greg Landgraf
Many of the cabinetmakers participating in Wood & Wood Productsâ 2001 survey of the cabinet industry acknowledged some softening in their market. But almost all said that talk of an impending recession currently in vogue in the media is more hype than reality. Only 18 percent agreed that the cabinet industry is headed into a recession.
The most common argument given against a recession is the Federal Reserve Bankâs recent interest rate cuts. âThe market was softer than expected in early fall, as most durable goods had a decline,â says Mark Walsh of Princeton, MN-based Crystal Cabinet Works. âThe demand should stabilize with the current lower interest rates affecting consumersâ confidence.â
The strength of the remodeling market was the second commonly listed saving grace for the industry. âIf new construction is going to be down, there still is remodeling,â observes Vince Hodshire, president of Holiday Kitchens of Rice Lake, WI. âMost people who remodel seem to have the money, versus going out to get the money.â
Remodelingâs share of the market among W&WPâs Top 25 cabinetmakers grew slightly, from 56 percent in 1999 to 57.2 percent in 2000. KCMA estimates that remodeling is an even bigger part of the industy as a whole â 75% of all cabinets â and there is no sign that remodelingâs share will decrease anytime soon.
One interesting phenomenon is that the largest companies (those with more than 100 employees) were more likely to view interest rate cuts as a factor preserving the economyâs health, while smaller companies (with 50 to 99 employees) cited the remodeling market more frequently as a reason for hope.
Still a Strong Base
âThe base economy remains very strong,â says Rodney Suggs, president of Legacy Cabinets LLC of Eastaboga, AL. Suggs says that his company experienced a sales slowdown late last year that is typical of the season, and that sales have as usual come back up again. âAs of yet, weâre going in a regular cycle,â he says.
Pent-up demand in the housing market, for example, was frequently cited as a buffer against recession. âThere is still a backlog of new homes, and with interest rates down, existing home sales should remain strong,â says Neil Lynch, senior vice-president of marketing for MasterBrand Cabinets Inc. of Jasper, IN.
Another respondent acknowledged the nationâs economic policies and controls as âheading offâ recession when it threatens. And strong base demographics, such as low unemployment and a growing population, were cited by several respondents.
Twenty-three of 73 respondents put next yearâs expectations in a lower category than this yearâs â reporting âvery goodâ business this year but anticipating âOKâ sales next year, for example. Only 13 report expectations in a higher category. On the up side, most of those who did anticipate a lower category still project OK or good sales, an indication of steady times, if not the euphoria of recent years.
More quantitative economic news has been mixed as well. In December, KCMAâs monthly Trend of Business Survey reported its first drop in cabinet sales in nearly five years. But housing starts that month improved by 0.3 percent. The U.S. index of leading economic indicators rose by 0.8 percent in January, but the stock market remains unstable as companies continue to warn of declining profits.
âThe negative growth recorded by KCMA member companies last December is part of a general economic slowdown that began to manifest itself last fall,â said Dick Titus, executive vice president of the Kitchen Cabinet Manufacturers Assn., in a recent interview with W&WP. âThe cabinet market is somewhat resilient in that it serves both new housing and remodeling.... Our outlook is for things to pick up in the spring provided more serious structural economic problems do not appear.â (Click here for the full text of the interview)
Legislative Wish List
Among larger companies, easing of environmental regulations was the most commonly requested policy change. The EPA, one respondent suggested, is too fixated on the politics of air pollution, which prevents it from fighting the major causes.
Several of the over-100-employee companies also said that the Fed should continue to reduce interest rates.
The one request common among companies of all sizes was a general reduction of federal regulations and the paperwork associated with them. âI spend more time making sure everything is compliant than I do running my business,â says Robert Nichols, president of Cabinets by Nichols Inc. of Bargersville, IN. âThereâs too much government interference.â
âLeave 60% of corporate America alone!â says Gene Ponder of Marshall, TX-based Republic Industries. âGo after the bad companies and recognize the good companies without taking the stance that they all only care about money.â
Because the survey asked an open-ended question about legislation, we received a wide variety of responses. Ergonomics, minimum wage freeze, higher import taxes, improving education, fighting Family and Medical Leave Act abuse, sunset laws, repeal of President Clintonâs logging bans, health care reform and fighting Californiaâs energy crisis were all listed as priorities by respondents.
Other Survey Highlights
Frameless cabinetry lost ground this year among the largest manufacturers. Framed cabinetry continued to dominate sales, making up 82 percent of the Top 25âs output. While one company, Norcraft Cos. of Eagan, MN, entered the frameless cabinetry arena with its purchase of Liberty, NCâs Ultracraft, four companies scaled back production of European-style cabinetry. Marsh Furniture Co. of High Point, NC, reported cutting construction of frameless cabinetry from 20 to 10 percent, and three other companies also reduced their ratio of frameless to framed cabinetry.
Bernadette Freund and Shannon Steinburg contributed to this report.
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