Manufacturing

Furniture industry sees Q4 gains

Nine of 10 indicators improved over Q3; executives’ confidence levels reached all-time high.

February 1, 2019
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Michael A. Dunlap & Associates’ latest report on the furniture industry shows business finished strong in 2018 and the industry is on solid footing heading into 2019.

The Holland-based consulting firm released the results of its January 2019 quarterly MADA/OFI (Office Furniture Industry) Trends Survey on Jan. 25. The report measures the current business activity of the office, education, health care and hospitality furniture industry and its suppliers.

The survey — which will repeat in April — was sent to more than 600 individuals involved with the commercial furniture industry’s manufacturing and supply chain from Africa, Asia, Australia, Europe, North America and South America, with companies ranging from $500,000 to $1 billion-plus in sales.

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

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

The survey uses index numbers to quantify how the industry is currently 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.

Continuing a multi-quarter theme, some of the most frequently cited perceived threats to the industry’s success in this report were tariffs, travel, and transportation and logistics costs.

Michael Dunlap, owner and president at MADA, said material costs such as steel prices dropped out of the list of top-cited concerns as the raw material costs index steadied due to the lack of increase in tariffs.

Nine of the 10 index values improved over the third quarter except for a small decline (60.42 to 59.58) in hours worked, he said.

Dunlap places the most significance on this quarter’s “record high values” in order backlog (67.92 in the fourth quarter, up from 60.74 in Q3 and the previous all-time high of 66.57 in July 2018) and personal outlook (66.54 in Q4, up from 64.81 in Q3 and the previous high of 66.50 in January 2007).

He said personal outlook is “a purely emotional question” but reflects executives’ confidence in the state of the industry and, thus, is important to monitor.

“I’m always delighted to see when you’ve got a high personal outlook index, and this one … is a record,” he said. “That and the order backlog, those two are strong indicators to me that we’re going into 2019 in a really good position.”

Dunlap said the order backlog index is a positive indicator for industry sales for the first and second quarters of 2019.

He said the report’s overall index of 59.31 is “well above” the 56-survey average of 55.05, but it does not reflect the delayed economic impact of midterm elections, tariffs, the trade war and the U.S. government shutdown.

January 2019 survey highlights

Gross shipments index: January 2019, 64.40; survey average, 58.24; previous all-time high and low: July 2018, 66.86, and July 2009, 41.40

Order backlog index: January 2019, 67.92 (new record); survey average, 57.81; previous all-time high: July 2018, 66.57

Employment index*: January 2019, 55.20; survey average, 52.57. *The employment index measures the degree of increase or decrease in employment levels. In West Michigan and many other industry locations, labor shortages are driving up wages, but increased hiring remains strong.

Hours worked index*: January 2019, 59.58; survey average, 55.96. *The hours worked index is closely tied to the employment index. When the hours worked index exceeds the mid-50s, usually due to overtime, the following one to two quarters often see increases in the employment index. The hours worked index slipped by less than 1 point from October 2018. This may be reflective of the inability to fill entry-level and skilled positions, which is driving up hiring and hours worked in the form of overtime.

Capital expenditures index: January 2019, 61.20; October 2018, 52.31; survey average, 55.96; all-time high: April 2017, 64.74

Tooling expenditures index*: January 2019, 57.50; survey average, 56.56; previous all-time high, April 2017, 66.65. *The tooling expenditures index tends to remain steady from quarter to quarter and typically tracks along with capital expenditures. The significant increase during the fourth quarter is “a nice surprise.”

New product development index: January 2019, 64.40; survey average, 63.37; all-time high: 69.70

Raw material costs index*: January 2019, 47.40; survey average, 44.86. *Many commodity prices in the fourth quarter of 2018 remained steady. Tariffs have not subsided or increased. Through 2015 and into 2016, the average was 50.95. The current index indicates material costs have steadied.

Employee costs index*: January 2019, 48.33; survey average, 46.61. *Much like its companion raw materials index, the employee costs index is rarely above 50. Although higher health care costs are the most frequently identified issue that contributes to higher costs, wage increases this quarter appear to have exceeded health care. We expect this to continue as long as we have a shortage of qualified labor.

Personal outlook index: January 2019, 66.54 (new record); survey average, 58.98. This is the strongest personal outlook index since the survey began.

Overall index: January 2019, 59.31; survey average, 55.05. The overall index is boosted by strong improvements in nine out of 10 individual index values and brings it closer to the highest recorded index of 59.72 in July 2005. The lowest was 41.45 in April 2009, during the bottom of the recession.

Source: Michael A. Dunlap & Associates

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