What’s ahead for wood products manufacturers involved in construction-based sectors and what investments have companies planned to improve their capabilities in the current business environment? 

To gain perspective, construction-based markets continued their growth trends in 2018, as U.S. spending on multi-family housing increased for an 8th consecutive year, while spending on new single family housing and nonresidential construction both increased for a 7th straight year, and spending on repair and remodeling increased for the 6th consecutive time, according to the U.S. Census Bureau.  The total value of private construction (residential and non-residential) put in place in 2018 was $993 billion, up from $963 billion in 2017.  The largest percentage increase from 2017 to 2018 was in single family housing construction, which increased by 5%; nonresidential construction increased by 3%, and residential improvements and multi-family housing each increased by 0.3%.  The number of single family housing starts was 848,900 in 2017 and 875,800 in 2018, representing an increase of 3% but still well below the peak number of nearly 1,716,000 single family units started in 2005, according to U.S. Census Bureau figures.

Against this backdrop, the tenth annual housing market study was conducted in early 2019 to assess market conditions for secondary woodworking manufacturers involved in construction-based and other related sectors. The studies are a joint effort by Virginia Tech, the USDA Forest Service, and Woodworking Network/FDMC. (See “About the Survey” for details).

Sales & market trends

Analysis of year-over-year sales performance reveals a somewhat stable percentage of firms reporting positive changes in sales volume in recent years.  However, this was the first year of the study series where the percentage of firms reporting a loss of sales volume increased.  For 2018, firms reporting a decline in sales volume was 21%, up slightly from 19% in 2017.  The percentage of firms indicating a year-over-year sales increase was 68%, down slightly from 71% in 2017.  By contrast, for 2009, 81% of respondents reported losing sales volume from the previous year (Figure 1).  The percentage of respondents in the Somewhat Better category (sales up by 10%) has been trending upward with 34% of respondents in this category in 2018.

Single family housing and remodeling continue to the top volume markets for secondary wood products manufacturers. In 2018, 34% of respondents indicated that at least 61% of their production volume was directly associated with single family housing construction (i.e., used in the building or trimming of new homes), which was the highest percentage recorded to date. In addition, 65% of respondents reported that a substantial portion of their production (more than 20% of production volume) was associated with single family housing construction, followed by the repair and remodeling market (61%), non-residential construction (28%), and multi-family housing (22%).

Percentage of firms with more than 60% of their production volume directly associated with the single family housing market.

Product demand & price points

Although green building products remain an area for woodworkers to diversify their products and leverage sales volume, customer interest in these products suggests otherwise. Even though there was a slight uptick this year in the number of firms reporting an increase (from 24% to 28%), the number of firms reporting a decline in interest also rose slightly, (from 58% to 60%), with another 13% uncertain.

Meanwhile, demand for batch one/made-to-order production continues to be important, with 55% of respondents indicating that over 80% of their overall product mix could be classified as made-to-order.  The industry also continues to target higher price-points, with 66% of respondents reporting they operated at medium-high to high price-points in 2019. 

Lastly, respondents to this year’s survey continued to be domestically focused, with 86% indicating that more than 60% of their sales in 2019 would result from domestically produced and/or sourced products.  However, 29% indicated that they had increased the use of wood imports in their respective product lines over the past five years, which was similar to the findings of the past two years.  Of those reporting increased use of wood imports, 56% imported components or lumber, 3% imported finished products, and 41% imported both finished products and lumber or components.

Planned investments

Similar to past years, 46% of respondents indicated that their respective firms planned to spend more in 2019 compared to 2018, with 28% uncertain.

When asked about their firms’ investment plans over the next three years, 57% of respondents indicated they would spend less than $250,000, which is a lower percentage than previous study years (Figure 2).  Conversely, there was an increase in those firms reporting they would spend between $250,000 and $1 million on investments, amounting to 30% of respondents in this year’s study.

Where are investments planned over the next three years (Figure 3)?  Several areas related to manufacturing were mentioned relatively frequently, including finishing and panel processing, but most categories scored similarly or lower than last year.  Some exceptions of note that scored higher in 2019 included employee training, sales force expansion/development, and advertising/marketing communications.  These trends suggest that firms are keen on retaining good employees and shifting more funds to generating sales relative to manufacturing in the current business environment.  Separately, several firms also responded to an open-ended question that they had increased, or planned to increase, investments in sales and marketing activities to maintain or grow sales volume.

Over the last three years, have you increased the use of computerization in any of the following areas?

Lastly, a majority of firms indicated they had increased computerization to collaborate with customers (defined as showing potential designs or products, virtual reality), in design activities, and in their manufacturing processes.  Nearly half of respondents had increased use of computerization for accounting purposes, and around 30% had increased use for their inventory tracking and supply chain management, respectively.

Survey summary

Changes in year-over-year sales volume have largely stabilized, with just 21% of respondents indicating that sales volume declined from 2017 to 2018, which is similar to (but slightly higher than) the past two study years.  Strong interest in single family construction was noted in this year’s study; however, even with continued improvements in construction markets, many respondents (28%) remained uncertain of their investment plans for 2019.  Since most respondents were small companies, most planned investments of less than $250,000 over the next three years but there has been an uptick in those firms planning to spend between $250,000 and $1 million.  

Manufacturing-related investment activity has been increasing relative to management-based investments as markets have improved over the past few years, but this year’s study saw a slight uptick in those planning to invest in sales generating activities such as advertising and sales force expansion.  Like last year, this year saw substantial interest from firms planning to invest in employee training, likely a function of the importance of retaining good employees in today’s competitive manufacturing environment.

About the survey

This is the tenth consecutive year for the Housing Market survey. While several of the questions have remained the same from year to year to help track industry activities, more recent studies also have included questions related to investment and computerization activities.  The 2019 study was conducted in March/April via e-mail invitations sent by Woodworking Network and FDMC to their subscribers.  A total of 110 usable responses were received.

Similar to past years, cabinet producers comprised the largest percentage of the sample, representing 50% of respondents. Fourteen percent of respondents were molding/millwork producers, 10% were dimension or component firms, 8% were household furniture producers, and 4% each were producers of architectural fixtures or office/hospitality/contract furniture. While an additional 11% indicated that their production was in “other” categories, most could reasonably be classified into one of the aforementioned categories or worked in closet manufacturing. Similar to past years, most responding firms were small, with 49% having sales of less than $1 million, and another 31% having sales of $1-$10 million. Furthermore, 60% of respondents had 1-19 employees and another 17% had 20-49 employees.

A majority of those responding (65%) held management positions, and another 13% indicated they were the owners. Responses were received from 41 states, with AL, CA, FL, MN, NC, OR and WA each accounting for at least 4% of the total responses. Geographic markets served ranged from a high of 58% doing regular business in the Midwest to a low of 22% doing regular business in the Southwest.  Business conducted by respondents in all other U.S. regions fell within this range.

About the authors: Urs Buehlmann is with the Department of Sustainable Biomaterials at Virginia Tech, Blacksburg, VA. Matt Bumgardner is with the Northern Research Station, U.S. Forest Service in Delaware, OH. Karen Koenig is an editor at Woodworking Network.