Slowdown Seen as

by WOHe

Slowdown Seen as ‘Modest,
Orderly’
 

The current economic and housing market slowdown, while
increasingly evident on a number of fronts, has been modest in the
view of most analysts, and is not expected to have a significant
negative impact on the kitchen and bath market in the short-term
future. Among the key statistics released by government agencies
and industry-related trade associations in recent weeks were the
following:

Remodeling Expenditures
The latest gains
in U.S. residential remodeling expenditures continue “to mirror
broader economic trends,” while remodeling “benefits from and
enhances” the nation’s economic expansion, analysts at Harvard
University’s Joint Center for Housing Studies said last month. The
latest Remodeling Activity Indicator (RAI) released by the Joint
Center revealed that remodeling expenditures by U.S. homeowners
increased for the four quarters ending in the third quarter of
2000. “The prospects are for slow, steady growth in remodeling
spending by homeowners over the next several quarters,” said Kermit
Baker, director of the Remodeling Futures Program of the Joint
Center. As an indicator, the RAI is derived from four components:
manufacturers’ shipments of floor and wall tile products; retail
sales at building materials and supply stores; sales of existing
single-family homes, and the bank prime loan rate. According to the
latest figures released by the U.S. Commerce Dept., residential
remodeling expenditures reached a seasonally adjusted annual rate
of $165.2 billion in the fourth quarter of 1999 an
all-time-high.

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities, led by a sharp
rise in custom cabinet sales, rose 5.2% in September compared to
September ’99, the Kitchen Cabinet Manufacturers Association
reported. The Reston, VA-based KCMA noted that manufacturers
participating in the association’s monthly “Trend of Business”
survey reported that year-to-date sales were up 9.3% through the
first nine months of 2000, compared to the same time frame last
year. Year-to-date sales of custom cabinets were up 12.8% through
September, while stock cabinet sales were up 8.7%, the KCMA
said.

Appliance Shipments
Domestic shipments of
major home appliances are expected to set a new record for 2000,
and should continue at historically high levels through 2001, the
Association of Home Appliance Manufacturers predicted last month.
According to the latest forecast issued by the Washington, DC-based
AHAM, appliance shipments will reach 64.54 million units this year,
breaking the record 62.69 million units of 1999. While 2001 is
expected to witness a slight decline in appliance shipments
compared to 2000, AHAM’s ’01 forecast of 64.05 million units, if
achieved, would still represent the second-best year on record (see
graph, top right). Gains for ’01 are being projected for each key
appliance category, with the exception of home comfort
products.

Home Sales
The nation’s housing market
“continues to surprise analysts in the face of higher mortgage
rates,” as sales of existing single-family homes rose to their
second highest level of the year as the third quarter got underway,
the National Association of Realtors reported. The Washington,
DC-based NAR said recent “unexpected” monthly increases in sales of
both new and existing homes indicate “solid demand in the housing
market.” The NAR also observed that it expects the Fed to react to
the current benign inflation picture by not implementing any
additional interest-rate hikes.

Market Analysis

Raleigh, NC The U.S. construction industry, including
residential remodeling and new construction, “should continue
rolling on at close to current levels for the foreseeable future,”
according to the latest in a quarterly series of reports examining
the economic health and future of the construction industry.

The report, released last month by the Raleigh, NC-based
management and training consultant FMI Corp., concluded that
because the current construction industry expansion the longest in
history “has occurred more gradually and with less volatility than
previous cycles, it’s reasonable to expect that it is sustainable
for at least the next several years.”

FMI pointed out that a number of historical factors “that
influence or determine sustainability” are aligned to support the
company’s forecast. Among them, said FMI, is an “acceptably low”
rate of inflation, increasing productivity in all sectors of the
economy, and demographics that “continue to reinforce confidence,
consumption and the increased investment required for sustained
moderate growth.”

Among the highlights of FMI’s latest report are the
following:

  • A prediction that the U.S. economy currently on a “glide path”
    will continue to drift downward and will execute a “soft landing”
    about midyear in 2001, at which time it will begin “a rather
    energetic rebound.”
     
  • An expectation that the Federal Reserve will “find it prudent”
    to raise interest rates once or twice in the next two to three
    quarters, “until it is satisfied that inflation has been quelled
    for the next few years.”
     
  • A forecast that single-family housing construction will follow
    the double-digit growth rates of 1998 and 1999, with more modest
    growth over the next two years. In fact, single-family housing
    starts are expected to decline from 1999 levels by 2% this year,
    and another 4% in 2001. Despite the declines, however, the value of
    single-family residential construction put in place will experience
    growth, as both home size and prices increase.
     
  • A projection that residential improvements after rising a
    robust 10% in 1999 will increase by only 2% in 2000 and 1% in
    2001.

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