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MADA report shows ‘solid’ Q3 for furniture industry

Consulting firm’s quarterly office furniture industry survey shows gross sales are up.

November 17, 2017
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A West Michigan consulting firm released the results of its quarterly survey on the health of the office furniture industry, and indicators point to growth in 2017 and a positive 2018.

Holland-based Michael A. Dunlap & Associates (MADA) released its October 2017 MADA/OFI (Office Furniture Industry) Trends Survey, and it showed the business activity of the commercial — or office, education, health care and hospitality — furniture industry and its suppliers was running at a steady clip.

The survey focuses on 10 key business activities, and respondents rate each area on a scale of 1-10, from lowest to highest. 

Activities include gross shipments, order backlog/incoming orders, employment levels, manufacturing hours (overtime vs. reduced hours), capital investment, tooling expenditures, new product development activity, raw material costs, employee costs and the respondents’ personal outlook on the industry.

The survey uses index numbers to quantify how the industry is performing. An index of 100 means things “couldn’t be better,” an index of 1 is “absolutely the worst,” and an index of 50 means it is neutral — no change up or down.

The October survey’s overall index is 55.22. The highest recorded index was 59.72 in July 2005 and the lowest was 41.45 in April 2009 during the bottom of the recession. The survey average after 52 surveys dating back to 2004 is 54.94.

“The industry continues to grow, but at a nice, steady pace,” said Michael Dunlap, owner and principal at MADA. “The overall index is strong and remains above the 54.94 survey average. We remain confident that 2017 will exceed 2016. I feel good about where the industry is going now and into 2018.”

Dunlap weights all responses equally, whether they come from a $50-million company or a $500-million company.

“The OFI trend survey tends to reflect higher index values than the large publicly traded companies in the industries because the large majority of our respondents are in the small company of $100-million in sales or less category,” he said. “Smaller companies … tend to grow at a more rapid pace than the large companies.”

The survey was sent to more than 450 individuals involved with the commercial furniture industry’s manufacturing and supply chain from Africa, Asia, Australia, Europe, North and South America and from companies ranging from more than $1 billion in sales to less than $500,000 in sales. The survey repeats in January 2018.

October respondents included Grand Rapids-based Steelcase, Zeeland-based Herman Miller, Holland-based Trendway and Muskegon-based Bold, as well as out-of-state companies such as East Greenville, Pennsylvania-based Knoll and Muscatine, Iowa-based HNI.

The October survey lists several highlights:

  • Gross sales index is 61.15, up from 60.29 in July, with an average of 57.99 and median of 60.19, indicating pent-up demand from previous quarters.
  • Order backlog is 61.60, down from 64.12 in July, with an average of 57.36 and median of 59.06. Tied with the gross shipments index, Dunlap concluded this is “good news for the fourth quarter and into 2018.”
  • Employment levels index is 51.92, down from 54.29 in July, with an average of 52.48 and median of 53.27. Hiring has slowed, but Dunlap concluded it’s due to labor shortages, not need.
  • Hours worked is 55.65, down from 58.33 in July, with an average of 55.70 and median of 55.70. This has leveled off but remains strong.
  • Capital expenditures is 56.09, down from 62.06 in July, with an average of 56 and median of 56.46. This remains consistent and solid.
  • Tooling expenditures is 66.65, up from 60.31 in July, with an average of 56.48 and median of 56.83. This is an abnormal pattern, as this is the highest index for tooling expenditures since MADA began the survey. Third-quarter tooling expenditures usually are weaker than other quarters, Dunlap said.
  • Product development activity is 59.55, down from 63.64 in July, with an average of 63.38 and median of 63.08. Although positive, this index is the weakest of the past three years.
  • Raw materials costs is 45.65, down 0.02 from 45.67 in July, with an average of 45.04 and median of 45.13. Dunlap said this is normal.
  • Employee costs is 48.26, improved from 47.65 in July, with an average of 46.63 and median of 46.55. This also is considered normal, Dunlap said.
  • Personal outlook is 62.40, down from 64.29 in July, with an average of 58.54 and median of 61.46. This is still “very strong,” according to Dunlap.

“Although some think the slowdown with some of the large public companies indicates a general decline in the industry performance, at MADA, we disagree,” Dunlap said. “We are surveying many more than five or six companies. The growth is coming from the smaller, under $50-million sales and fewer than 250 employees. I am still pleased to see the strength of the personal outlook index. It’s a purely emotional question, but we put a lot of value on this content.

“Seven out of 10 index values have declined negligibly, and three — gross sales, tooling expenditures and employee costs — have improved. Only material costs and employee costs are below the 50 level, which is normal. We maintain the opinion that the industry will continue to grow steadily during the fourth quarter of 2017 and into 2018.”

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