As the Bank of England revises up its short-term inflation forecast, and subdued wage rises and tight credit conditions bear down on consumer spending, the key end-markets for timber continue to battle strong headwinds.
Now stagflation – the 1970s-style combination of high inflation and low growth – has loomed up again, and the timber industry is not immune. Output of wood and wood products, and of furniture, fell at annual rates of nearly 15% and 3% respectively in the 12 months to March, while manufacturers’ input costs rose by over 7% in April. Retail prices of furniture have jumped to an annual rate of 6.7%.
Overall output
Growth in manufacturing output overall, a useful indicator of demand for wooden pallets and packaging, also disappointed in March, after flat-lining in February.
Meanwhile, the latest British Retail Consortium (BRC) survey points to a strong rise in total retail sales in the year to April – partly explained by the timing of Easter and by the sunny weather.
But the upturn provides little respite for furniture outlets or, looking ahead, for manufacturers: the BRC says that although sales of furniture were marginally higher than last April, when they dipped sharply, business was largely driven by demand for garden furniture. Sales of indoor items such as fitted kitchens and bathrooms, were “very difficult” and “forward orders show a worrying weakening”.
Newly released official data for all of 2010 reveals that the volume and value of consumer spending on furniture fell by 4.8% and 0.5% respectively. Estimates of retail sales of furniture in the first quarter of this year indicate a year-on-year 1.7% rise in volume terms and a 5.1% improvement by value.
Construction market
Turning to construction, timber’s largest end-user market, the Royal Institution of Chartered Surveyors reports an increase in the number of home viewings by potential buyers in April, and an improvement in sales. The number of loan approvals for house purchase rose by nearly 2% in March, according to the Bank of England.
On UK building sites, however, growth in activity slowed sharply in April after expanding strongly in the two previous months. The Markit/CIPS Purchasing Managers’ Index also shows that total new orders for construction continued to increase, but at a weaker rate than in March. Activity in both the housing and civil engineering sectors slowed, with the former contracting for the first time this year.
The survey also suggests that constructors increased buying activity at the start of the second quarter, to reach the strongest for 10 months. Nonetheless, “confidence among constructors remained low by historic levels”.
Revised government figures on construction output point to a 4% decline in the first quarter, an improvement on the 4.7% slump first estimated. Compared with the same period last year, output of new work increased by 4.3% – with total housing output up 12% – while total repair and maintenance work rose 2.3%.
The Construction Products Association now forecasts that construction output will fall by 0.8% and 2% in 2011 and 2012 respectively, before rising by 0.5% in 2013 and 2.3% in 2014.
