As the financial siege tightens its grip on consumers, and the economy is doing worse than the gloomiest forecast, the latest survey of timber and wood product makers reveals that business confidence too has fallen sharply.
According to a CBI poll, 65% of firms in the industry are now less optimistic than they were three months ago. In the previous quarterly survey 52% of respondents indicated a drop in confidence. Among furniture makers a massive 89% are less cheerful about business prospects than three months earlier.
The reasons for increased pessimism are not difficult to find. Some 30% of timber and wood product manufacturers report order books below normal and 21% expect new orders to fall over the coming quarter, accompanied by a 35% drop in the volume of output. Some 82% foresee an increase in production costs, while only 19% expect to book domestic orders at higher prices and none predict an increase in their export prices.
Furniture industry
Among furniture makers nearly two-thirds have order books which are thinner than normal and over a half expect orders to fall in the coming months, while 50% forecast a consequent drop in output. On costs, 89% of furniture producers predict an increase; against this, 47% plan to raise prices to domestic buyers, but no change is expected for export markets.
Meanwhile, a plethora of woes is keeping consumer wallets tightly closed – from rising prices, below-inflation earnings growth, and a softening labour market, to restricted credit, a failing housing market, and a new Bank of England forecast of continuing economic stagnation, if not outright recession.
The latest official figures indicate that the value of furniture sales in July fell by 7% year-on-year, following a dip of 1% the previous month. In volume terms, consumer demand for furniture was 12% lower than a year ago after a 5% drop in June.
Survey evidence from the CBI is that furniture businesses “continued to face difficult conditions” in August, with 100% of retailers reporting a decline in sales volumes for the second month in a row.
The rising retail price of furniture – up by 7.6% annually in July from 5.8% in June – does little to encourage consumers to spend on what for most is an easily deferrable purchase. Further back in the supply chain, factory gate prices of wood and wood products rose by a yearly 2.4% but manufacturers’ costs increased by 7.3%.
Construction output
On construction sites output has continued to decline, led by a severe contraction in housing activity as new orders have fallen. The purchasing managers’ index for July suggests that declining workloads reduced the level of purchasing activity to record lows, and marked an end to contractors’ optimism about recovery.
Government figures show that new construction orders for private-sector housing fell by 20% over the 12 months to June and dropped 35% annually in the second quarter. Orders placed for commercial projects fell by 33% over the second quarter of last year and orders for industrial projects dropped 38%.
Further indications of the sickness of the housing market are provided by falling prices – the Halifax reports a 10.9% annual fall in July – and by a 71% plunge in new mortgage approvals.
At a time when official analysts revealed that the economy recorded zero growth in the second quarter and consumers cut their spending by 0.1%, a smidgen of hope on housing comes from the RICS. Its members report that sellers are starting to re-evaluate “unrealistic” asking prices, thereby offering the possibility that activity may pick up. Good news for buyers but discouraging for sellers.
