British furniture makers are now markedly more pessimistic about their business prospects than they were in April, and manufacturers of timber and other wood products have lost some of their optimism too.

These findings from the latest CBI survey, which was taken ahead of the August quarter percentage point interest rate hike, spark concern when viewed in the context of the still strong housing market and buoyant consumer spending, together with improving business investment and manufacturing – all the signs of a fairly healthy economy. The only big threat is a bust in the housing market which could lead to recession, as happened in the early 1990s.

Dig further into survey results and reasons for the gloom become apparent. A net 42% of furniture makers report their order books are below normal, compared with 31% saying so in April; 47% expect total new orders to fall in the coming months, against 35% in the previous poll; and 40% expect domestic market deliveries will drop, compared with 28% last time. Surprisingly, only 19% say their level of output is below capacity, compared with 52% in the April survey.

Some of the same downward trends are seen by timber and other wood product manufacturers when they look forward. The survey reveals that 25% expect total new orders to fall over the next three months, compared with 25% expecting an increase in the previous poll; 14% predict output volumes will rise, against 25% previously; and only 11% expect domestic deliveries will rise, down from 25% in April.

But for the present, 7% of firms in the sector say order books are now above normal for the time of year, compared with 19% who claimed below-normal levels last time. Further, 51% are now working below capac-ity, against 75% in the previous survey.

Manufacturing output

The latest official figures on UK manufacturing output indicate that in June modest month-on-month gains were made for sawmilling, veneer sheet and plywood, builders carpentry and kitchen furniture. Output of other furniture was marginally lower on the month, but wooden container output dropped 2%.

Looking at the state of the timber industry’s end markets, construction orders for new work rose in volume by 23% during the year to June, and were up by nearly 14% in the year to the second quarter of 2004.

Total orders for all new housing jumped 9% between the second quarter of this year and the same time a year ago. Orders for private sector housing, which accounts for around 84% of the total, rose by over 6%. Orders for commercial buildings, such as shops and offices, soared by 29% annually in the second quarter, and even orders for industrial buildings rose 19%. In contrast, orders for new infrastructure projects fell 9%.

The snapshot of business conditions in construction provided by the Chartered Institute of Purchasing and Supply index shows a further marked increase in activity in July, and at 54.2 was above the critical 50 no change level for the 66th consecutive month. CIPS director Roy Ayliffe said the survey panel “is strongly optimistic that activity levels will continue to rise”.

Construction demand

Separate evidence from the CBI indicates that demand from the construction industry pushed up builders’ merchants’ sales in July. A net 64% reported annual volume growth, up from 48% and 59% in May and June respectively.

And in the high street, the CBI says sales by furniture and carpet retailers rose annually for 79% of outlets in July – an indication of the strongest growth since September 1996.

So is the gloom among timber product manufacturers justified? Certainly demand from the construction industry and consumers will slow in the months ahead; that, after all, is the purpose of the Bank of England‘s interest rate policy, designed to keep inflation under control. British manufacturers must also expect to face rising pressure from European and other competitors.

On balance, the outlook is probably less dark than our industry is predicting. The next CBI survey, due at the end of October, will disclose how the business actually performed over the summer and early autumn months.