The education sector is a particularly solid niche for furniture manufacturers. Not only is education a large market, but it tends to grow solidly over time. Experience tells us that over the long-term, demographic trends how fast or slow the school-age population is growing will always have the largest impact on net additions to the education building stock (new construction). In any short-term period, however, economic effects can trump those long-term trends. As we all know too well, 2007 and 2008 have not been ordinary years by any stretch of the imagination. The housing crisis has yet to find its bottom and the overall economy finds itself either in a recession or something very close to it.
Fortunately, the economic effects on school construction come with a lag. It takes a while before a downturn in the economy is felt by state and local tax receipts, and then it takes more time for the declines in tax receipts to cause a pullback in spending for school construction. In fact, school construction spending in 2007 and in the first four months of 2008 reflected the more buoyant economic conditions of the mid-2000s. The dollar value of school construction rose 14 percent in 2007 and 11 percent in the first four months of 2008.
But today's economic maelstrom will eventually catch up with school construction, with declines in spending expected in both 2009 and 2010. The economic slump will lower state and local tax receipts and also make it harder to pass the bond measures necessary to fund building projects. This will have the temporary effect of lowering investment in public education infrastructure.
Strong enrollment trends provide boost
Fortunately, the economy will weather this storm and eventually return to a more normal growth path, and spending for school construction will again head upward. The underlying demand for school construction (changes in school enrollments) is the long-term driving force behind education construction, and that growth is expected to remain healthy throughout the next eight years. According to the most recent (December 2007) enrollment projections from the National Center for Education Statistics, public and private school enrollments (PK-12) will grow 7 percent from 2007-2016. This growth is on par with the 6 percent rate of growth seen over the previous nine years (1998-2007).
However, the grade levels at which this growth will occur will change as different age cohorts move through the school system. From 1998-2007, most of the growth occurred at the high school level: enrollment in grades 9-12 grew 14 percent during this period, compared to 3 percent for grades K-8. Over the next nine years, the opposite will be true: enrollment in grades 9-12 will advance 2 percent (reflecting the slower gains in primary schools over the previous nine years), while earlier grades will advance 9 percent. Over the next nine years, college enrollments will increase 14 percent, reflecting the same rate of growth in high schools over the past nine years. Even that rate of growth is down from 24 percent over the previous nine years.
These differing rates of growth suggest that construction trends are likely to change along with demographics. Construction on college campuses will remain a growth driver for the education sector. But, where high school construction has grown at a healthy pace in recent years, that growth may now ease in favor of elementary and middle school construction. What this means for furniture manufacturers is that even if you are in a strong and growing niche, you have to be flexible enough to keep up with the more subtle, yet critical, changes within the marketplace.
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