Construction-based markets continued their growth trends in 2016, as U.S. spending on single family housing, multi-family housing, and nonresidential construction all increased for the 5th straight year, and repair and remodeling increased for a 4th straight year (U.S. Census Bureau). The total value of construction put in place in these four sectors was $877 billion in 2016.
The largest proportional increase from 2015 to 2016 was in multi-family housing, which increased by 17%; nonresidential construction increased by 8%, single family housing increased by 4%, and remodeling increased by 3%. This increase in multi-family spending followed a 24% increase from 2014 to 2015. The sustained strength in multi-family housing construction likely reflects, in part, affordability factors for single family homes, especially for potential first-time buyers. The seasonally adjusted annual rate (SAAR) of new single-family housing starts in March 2017 was 821,000, representing a 5% increase over 2016 (781,500) but still well below the peak number of nearly 1,716,000 single-family units started in 2005 (U.S. Census Bureau).
Against this backdrop, the eighth annual housing market study was conducted in early 2017 to assess market conditions for secondary woodworking manufacturers involved in construction-based sectors. Pertinent questions that were addressed include: Did the woodworking industry continue to realize sales volume increases? What do companies plan as investments to improve capabilities in the current business environment? The studies are a joint effort by Woodworking Network/FDMC magazine, Virginia Tech, and the U.S. Forest Service (see “About the Survey” at the end of the article for details about the design of this year’s study).
Changes in Sales Performance and Markets Served
Analysis of year-over-year changes in sales volume performance for the eight study years (2009-2016) shows continued improvement. For 2016, the percentage of firms indicating year-over-year sales increases rose slightly to 65% (from 63% for 2015). Those reporting a decline stabilized at 20% (the same percentage as 2015) and the remaining firms reported no change. By contrast, for 2009, 81% of respondents reported losing sales volume from the previous year (Figure 1). Furthermore, the proportion of respondents in the Somewhat Better (sales up by 10%) and Much Better (sales up by 20% or more) categories have been trending upward; these two categories represented over half (52%) of respondents for 2016. Correspondingly, the Slightly Better (sales up by 5%) has been trending downward as more respondents report improving sales.
In 2016, it appeared there was movement toward single family housing, reversing a trend of movement away from this sector in previous years. As shown in Figure 2, 60% of respondents indicated that at least a moderate amount of their production volume (21% or more) was directly associated with single family housing construction in 2016, up from 49% in 2015. Similarly, the proportion indicating that none of their production volume was associated with single family housing declined from 27% in 2015 to just 18% in 2016. For 2016, 87% of respondents reported that at least some of their production volume was associated with the repair and remodeling market, followed by singe family housing construction (82%), non-residential construction (72%), and multi-family housing (57%). Overall, single family housing and remodeling continue to be the most important volume markets for secondary woodworking manufacturers.
Green building products are another market possibility for secondary woodworkers to leverage sales volume. Across most years of this study series, however, there has been a declining trend of respondents indicating they have seen increased interest from customers seeking to source products compliant with green building standards programs. This year was no exception, with just 29% of the respondents indicating they had seen an increase and 57% reporting a decrease (14% were uncertain). This was the widest gap between the “yes” and “no” responses to date, and the “no” response was 10 percentage-points higher in 2017 than in 2016. The year 2011 was the last when “yes” responses exceeded “no” responses.
Demand for made-to-order production continues to be important for the secondary wood industry, as noted in each year’s study. The year 2017 was no exception, with 51% of respondents indicating that over 80% of their overall product mix could be classified as made-to-order. However, this figure was the second-lowest of the series (2015 was the lowest at 50%) and there has been a trend of declining made-to-order production since 2012. While the industry continues to target higher price-points, there was an apparent decline in 2017. In 2017, 54% of respondents reported they operated at medium-high to high price-points, which was lower than the 63% reported in 2016. This figure has been in the mid- to upper 60 percent range each previous year until 2017.
Lastly, respondents to this year’s survey continued to be domestically focused, with 89% indicating that more than 60% of their sales in 2017 would result from domestically produced and/or sourced products. However, about 31% indicated that they had increased the use of wood imports in their respective product lines over the past five years, which was the largest percentage to date. Of those reporting increased use of wood imports, 58% imported components or lumber, 16% imported finished products, and 26% imported both finished products and lumber or components.
Planned Investment Activities
Similar to the past two years, activities related to industry investments aimed at improving productivity and capabilities were assessed. Respondents were asked if they planned to spend more in the current year (2017 for the current study) compared to the previous year (Figure 3). While there was a dip in planned investment spending in 2016, data for 2017 saw a return to levels similar to 2015. For 2017, 45% of respondents planned to invest more than the previous year, compared to 40% last year and 46% in 2015. It should also be noted that each year, a substantial percentage of respondents were uncertain whether they would spend more on investments or not, ranging from 29% in 2016 to 35% in 2015.
When asked about their firms’ investment plans over the next three years, 69% of respondents indicated they would spend less than $250,000 in the 2017 study, which is similar to the 2016 (71%) and 2015 (68%) studies. An interesting trend was observed at the high end of the scale (investments greater than $2.5 million), where the percentage of firms has increased steadily from 2015 (4%) to 2017 (7%).
The study also assessed the general categories or areas where investments were planned over the next three years (Figure 4). The trend was for manufacturing-based investments, including finishing, solid wood processing, and assembly to show a strong growth trend over the study period, suggesting that responding firms are looking for improvement of their manufacturing capabilities as construction markets improve. Smaller increases also were noted for manufacturing software and panel processing. Conversely, management-based investments such as sales force development and advertising/marketing communications have shown declining investment activity. These trends further suggest that companies are currently focused on manufacturing and less emphasis is being placed on generating new sales.
Lastly, respondents were asked to rate the importance of several factors to their investment plans over the next three years (Figure 5). The year-over-year changes were somewhat small for all of the factors, with the exception of entering new product markets. This factor has been steadily decreasing in importance each year, suggesting that existing business has improved for respondents to the point that less pressure is being felt to seek out new markets. In 2017, the most important factors driving investment decisions included improved productivity, improved product quality, and increasing market share.
The single family housing market is improving, and therefore increasing in importance for woodworkers. Remodeling also remains an important market. Over 80% of respondents indicated that at least some of their production volume was associated with those two markets. Manufacturing-related investment activity has been increasing relative to management-based investments as construction markets have improved. Since most respondents each year represent small companies, most indicate planned investments of less than $250,000 over the next three years; however, the percentage of respondents planning large-scale investments (greater than $2.5 million) has steadily increased over the past three study cycles. Changes in year-over-year sales volume has largely stabilized, with about 20 percent of respondents each year now indicating that sales volume is declining. However, even with the stabilized markets many respondents (34%) remained uncertain of their investment plans for 2017.
About the Survey
This is the eighth consecutive year for the Housing Market study. 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 activities. The 2017 survey was conducted in February and March by Woodworking Network/FDMC magazine via e-mail invitations sent to their subscribers. A total of 203 usable responses were received.
Similar to past years, kitchen/bath cabinet producers comprised the largest percentage of the sample, representing 43% of respondents. Fourteen percent of respondents were household furniture producers, 12% were architectural fixture manufacturers, 9% were millwork firms, 7% were producers of dimension or components, and 3% manufactured office/hospitality/contract furniture. While an additional 11% indicated their production was in “other” categories, most could reasonably be classified into one of the aforementioned categories (especially millwork) or a combination of these categories. Similar to past years, most responding firms were small, with 57% having sales of less than $1 million in 2016, and another 25% having sales of $1-$10 million. Furthermore, 69% of respondents had 1-19 employees, which was down from 72% in 2016 but still the second-highest proportion of small firms in any of the study years (at least 61% of the sample has consisted of small firms in each year).
A majority of respondents (63%) held positions in corporate or operating management, and another 16% indicated they were the owners of their respective firms. Responses were received from 42 states (similar to previous years), with CA, FL, MN, NC, OH, PA, and TX having the most participants and each accounting for at least 4% of the total responses.
About the authors: Urs Buehlmann is with the Department of Sustainable Biomaterials at Virginia Tech, Blacksburg, Virginia. Matt Bumgardner is with the Northern Research Station, U.S. Forest Service in Delaware, Ohio. Karen Koenig is an editor at Woodworking Network.
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