The more buoyant housing market, and an upturn in consumer confidence, are reflected in a rebound of optimism about the business outlook among Britain’s timber and wooden product manufacturers.
According to the latest CBI snapshot of the industry, excluding the furniture sector, at the end of the first quarter, 45% of firms were more optimistic about the business situation than three months earlier, while 28% were gloomier. The balance of 17% compares with a balance of -13% in the previous survey, which covered the fourth quarter of 2005.
Nonetheless, the majority of timber product suppliers expect total demand to remain flat during the second quarter. Around 60% of poll respondents say new order volumes will be the same as the previous three months, while 11% predict an increase and 28% suggest orders will fall. Order books are deemed to be thinner than normal for a balance of 17% of firms, a similar figure to the previous quarter, and the majority of respondents (56%) have orders to cover less than one month’s output.
On output volumes, nearly three-quarters of respondents forecast little change overall in the short term, but a balance of 18% expects a fall. In the previous survey only 1% predicted a downturn. The latest figures are not surprising in view of the 72% of firms holding adequate or more than adequate stocks of finished goods to meet expected demand.
Reporting on costs and prices, one in three timber and wooden product manufacturers told the CBI that unit production costs rose in the first quarter of 2006, and a slightly larger 40% expect higher costs in the second quarter.
For the industry’s domestic customers the implication is that 95% will see prices rise or remain unchanged over the next three months.
Capital spending
Finally, on the future health of the industry, the CBI reports that fewer businesses now plan to increase capital spending on buildings in the coming year than in the past 12 months, but increased outlays on plant and machinery and on training are planned. However, spending on product and process innovation is likely to be trimmed back over the coming year.
Meanwhile the latest official data suggest that the volume of retail furniture sales in March was 3% higher year-on-year, while in value terms demand rose by 4%. The late Easter gave a boost to sales on the high street in April and the British Retail Consortium (BRC) says furniture and carpet sales picked up markedly. But the improvement was largely driven by promotions, particularly for fitted and garden furniture. The CBI reports that two-thirds of furniture outlets saw lower sales volumes in April than 12 months earlier.
The average retail price of domestic furniture dropped by 5.5% during April, confirming the BRC report of hefty discounting, although prices were up by 2.3% compared with April 2005. At the factory gate, the price of bedroom, dining and living room furniture fell by 0.6% in the year to April, following an 0.7% drop the previous month.
Reviewing consumer demand for furniture and furnishings during the past decade, market researcher Mintel says sales grew by 21% between 1995-2005 to reach £13.8bn, or an average of £534 per household per year. Sales of floorcoverings, worth some £1.9bn, showed the slowest growth and were characterised by intense price competition from cheaper imports, including wood laminate.
For private sector housebuilding, overall growth in output in real terms is now forecast by analysts Market & Business Development to be around 31% between 2005-2010. Output in the much smaller social housing sector is set to rise by 36% over the same period.
