There was little surprise when official statistics on British manufacturing confirmed in June that output had shrunk for the second consecutive quarter, the official definition of recession.
The better news is that the Confederation of British Industry‘s latest survey of manufacturing reveals that in some aspects, furniture and other timber product producers are doing better than average.
The CBI reported that, although July high street sales grew at the fastest annual rate since May 2000, furniture sales volumes were flat. However, even this is an improvement on June, when 31% of furniture retailers saw volumes sink below the level of a year earlier. In contrast, anecdotal evidence from the British Retail Consortium is that furniture ‘had a good period during the sales’ with beds and soft furnishings ‘selling well’.
The CBI survey of industry trends shows that during the four months to July manufacturing as a whole suffered a decline in domestic and export orders, investment intentions and business optimism.
But compared with 22% of manufacturers overall who said they were more pessimistic about the outlook, 8% of timber and wood product firms, other than furniture makers, claimed to be optimistic.
Output was down for 4% of these respondents – a milder decrease than for manufacturing overall. But while domestic market orders were sluggish during the past four months, and are expected to decline slightly during the next four, export business declined for two-thirds of respondents and is set to remain negative for 50%.
Unit costs fell for 3% of firms, but 27% predict that increases are in the pipeline. At the same time, domestic and export prices have fallen significantly (down for 16% and 50% respectively) but the rate of decline is set to slow. Also, only 18% of firms say they are working below capacity, while the industry average is 67%.
Manufacturers of furniture, upholstery and bedding are less buoyant about prospects in the months ahead (-29%), and a similar percentage is pessimistic about future exports.
Nonetheless only 30% of respondents are working below capacity – reflecting the marginal 1% who say delivery volumes to the domestic market fell during the past four months, and the 13% reporting increased export shipments. In manufacturing as a whole the comparable figures for home and overseas delivery volumes are -11% and -15%.
The downturn in domestic-market prices noted by 45% of furniture makers is expected to moderate during the next four months, but the smaller decline in the level of export prices will not change. A quarter says unit manufacturing costs increased during the past four months, but only half that proportion expect the increase to continue.
Official estimates of UK factory gate prices in July indicate that the average price of timber and wood products was unchanged on the month and at the year-on-year rate. In June prices were 0.1% lower than a year earlier. The cost of materials and fuel purchased by the industry was 0.2% less expensive during July, setting the annual rate of decrease at 0.3%.
On the economy as a whole, the Bank of England has become more pessimistic. Its latest report suggests that even with the interest rate cut to 5%, annual growth will fall to around 1.5% in the third quarter. Sluggish recovery thereafter will produce 2% growth for the year overall, but expansion will remain below the economy’s potential rate of 2.5% throughout the next two years.
It also predicts that if the base interest rate remains at 5%, underlying inflation ‘is likely to drift a little lower in the coming quarters, slipping back to around 2% by spring 2002’. Consumer prices may then edge up slowly towards the government’s 2.5% target.
But the Bank is concerned that present high levels of corporate and personal borrowing pose the threat of a sudden reduction in business investment and consumer spending. Also, a fall in sterling’s value could raise import prices and dampen personal income and spending growth.
Related Files
Builders’ Joinery and Veneer Output
Wood and Wood Product, Cost and Price
Housing Start and Competions
Furniture Price and Cost
Manufacturing output
Wooden Furniture Ouput
New Construction Orders
Builders’ Carpentry & Joinery Wooden Container Prices
