How badly do current business conditions hurt? Let us count the ways.
Ouch #1: Two years ago, the April cover of Wood & Wood Products proclaimed, “Cabinet Boom Continues.” Cabinet sales, as tracked by the Kitchen Cabinet Manufacturers Assn.’s monthly Trends of Business Survey were riding high, having reached 118 months of consecutive growth in February 2006.
The cabinet sales streak lurched to a halt in November 2006 and began to slide into reverse. February 2008 marked the 16th consecutive month of negative sales growth, with no clear sign in sight of a let-up in red numbers.
As this month’s cover story by Associate Editors Matt Warnock and Wade Vonasek (beginning on page 41) notes, many cabinet manufacturers who have banked on new home construction are trying to shift more of their business to remodeling, which accounts for about 75% of cabinet sales.
Ouch #2: New housing, a vital market for the wood products industry, remains mired in retrenchment. Housing starts, which peaked at 2.068 million units in 2005, have dropped precipitously to a seasonally adjusted rate of 1.065 million units in February 2008.
New and existing home sales throughout most regions of the nation are sluggish, a condition largely wrought by the mortgage crisis. It turns out that at the same time former Fed Chief Alan Greenspan was being heralded as an economic genius for keeping the economy humming through unprecedented steep cuts in the prime lending rate, he was unwittingly setting the stage for the housing recession.
Sure, the interest rates were attractively low a couple of years ago, but what good did a low interest rate do if a buyer was paying double or more than what the same home sold for a few years before? As it turns out, too many home buyers bit off more than they could chew, and the home loan industry was more than happy to feed their appetites, with the ultimate too-good-to-be-true morsel being sub-prime loans.
As the federal government touts relief for hundreds of thousands of home foreclosure candidates, the lending industry, which has reeled in the wake of mortgage debt, has been less quick to give out money. The mortgage crisis has amplified concerns about the nation’s mounting consumer debt levels. American consumers’ wanton desire to have things now has far too many people living beyond their means. It is potentially a ticking time bomb that might only be defused by a radical change in consumer behavior or an overhaul of the nation’s credit system.
Ouch #3: As if the weakened housing market was not cause enough for a headache for woodworking machinery sellers, the weak U.S. dollar has further put a damper on the sale of imported technology. One Euro was worth a staggering $1.57 in early April.
This double whammy also has put a big hurt on Canadian wood products manufacturers who do business south of their border. On top of that, they have felt the sting of lost U.S. market share to China over the last decade or so.
Meanwhile, particularly because of the lowly dollar, one would suspect that U.S. companies would be able to export more. If they are, they are keeping it a secret.
Ouch #4: Gasoline prices continue to edge up; they recently topped $3.50 a gallon at Chicago-area pumps. The costs of natural gas and electricity also have soared. These costs of doing business often are hard to pass along fully to downstream customers. The specter of $4-a-gallon gas is hardly a tonic for restoring consumer confidence.
Ouch #5: As if the North American woodworking industry has not suffered enough of late, a tornado twisted into downtown Atlanta last month and inflicted tens of millions of dollars in damage to the Georgia World Congress Center. Despite the extensive damage, GWCC officials are confident that the building will be repaired well in time for the International Woodworking Machinery & Supply Fair, Aug. 20-23.
When something hurts in as many ways as current times do, one can be forgiven for uttering, “Ouch!” But there’s no excuse for protracted whining over things beyond our control. Better to get your house in order, prioritize and prepare for the next upsurge.
As U.S. economic history has proven, better days are just around the bend. Be ready.
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