Despite poor figures on output of wood products at the end of last year, 2006 got off to a good start with news of strong consumer spending and continuing recovery in the housing market.

The latest official estimates point to weak demand for UK-processed wood and wooden products. In the 12 months to November sawmilling and planing output fell by around 6%, and builders’ carpentry and joinery, and wooden container production, were down by a similar percentage, while veneer sheet production fell 11%. On a brighter note, kitchen furniture output fell by less than 1% and other furniture was up nearly 2%.

Surveys of consumer confidence late last year indicated that consumers were still subdued. Nationwide‘s poll fell by five points in December and its measure of spending confidence dropped 18 points. Similarly, the GfK NOP survey for the European Commission found overall confidence among British consumers standing at –9, its lowest for the whole of 2005, while the measure of whether it is a good time to make big purchases dropped three points.

Upbeat picture

But either people were overdoing the gloom in response to survey questionnaires, or their caution lifted around Christmas as their spending is now recovering. The CBI paints an upbeat picture of overall retail activity in December, with furniture volumes up on the November level, although they were lower than a year earlier for two-thirds of businesses.

The British Retail Consortium says the value of high street sales rose by 6.2% in the year to December, and like-for-like sales were up 2.6%. On furniture, sales were often at low margins, and sofas and beds generally sold better than other items.

Market researcher Mintel says the picture is less rosy in dining furniture, with sales down 8% in five years, to £119m. But this compares with a 40% rise in home office and a 37% increase in bedroom furniture.

“The latest retail figures do not necessarily indicate that consumer spending is about to rise strongly for a prolonged period,” warns Oxford Economic Forecasting, “but predictions of a collapse in spending appear to have been misplaced.”

Housing recovery

The housing market has also continued to show signs of recovery. The Nationwide index of house prices rose from an annual rate of 2.4% in November to 3% in December. Halifax predicts flat prices in 2006, but reports a 1% rise in December.

Other housing market indicators have also picked up. The number of mortgages approved in November rose for the fifth consecutive month, according to the Bank of England, and the Royal Institution of Chartered Surveyors says new-buyer enquiries have risen for the sixth month in a row.

The December survey from the Chartered Institute of Purchasing and Supply reveals that construction activity slowed to a seven-month low, mainly reflecting weaker growth in new orders. For the third successive month only the commercial building sector saw increased activity. House building was down for the third consecutive month and the increase in purchases of construction materials was the weakest for nearly three years.

The Construction Products Association estimates that construction output fell by 1% in 2005 – the first annual decline in 11 years. It adds that the industry was hit by higher energy and raw material costs as well as by weaker private- and public-sector activity.

But a modest increase in output is forecast by the CPA for 2006, due to a recovery in public-sector work. And construction output is forecast to rise by about 3% in 2007 and 2008.