“The portents are increasingly gloomy. More and more signs are pointing to a punishing slowdown – with a recession looking likelier by the day.” So says The Economist magazine, as it warns that business managers used to cheap, sound money will need new skills to adapt to the present, treacherous times.

A raft of economic indicators points to the difficulties confronting timber and wood product companies as their key markets for a wide range of products – the construction and furniture industries – come under increasing pressure. And now the manufacturing and distribution sectors, important users of wooden containers and pallets, have added to the markets which are heading towards the buffers.

Official figures on new construction orders reveal total volumes down 13% in May compared with a year earlier. Private-sector housing orders fell by 12% annually, and in the latest three months they dropped 17% on the previous quarter and by 36% compared with a year earlier.

Construction record

A survey by the Chartered Institute of Purchasing and Supply shows that activity levels in UK construction slid at a record pace in June, and the housing sub-sector was the worst hit. The poll’s index of new orders also reached an 11-year nadir. Mortgage approvals, a leading indicator of the strength of the housing market, fell by a further 28% in May. The total of 42,000 was less than a third of approvals at the end of the 2006 peak and below the trough of the early 1990s. Nationwide Building Society estimates that house prices were down 6.3% in the year to June, and Halifax reports a 6.1% drop over the same period. Citigroup believes it will take two years for prices to stabilise.

The housing downturn is slowing demand for furniture and other housing-related consumer durables. The CBI says nearly half of all furniture retailers suffered a year-on-year drop in sales volumes during June – the fifth successive month with demand either flat or weaker than a year before. The British Retail Consortium confirms that furniture sales weakened further below year-earlier levels.

Government figures for the first quarter of 2008 show the volume of consumer spending on furniture and furnishings was 1.8% lower annually, after a 4.2% drop in the fourth quarter of last year. Spending on furniture in 2007 as a whole fell by 1.7% in volume terms, but was higher by 2.8% at current prices.

Furniture sales

The outlook for furniture sales is worsening. A European Commission survey of British consumer attitudes to major purchase intentions was its gloomiest in June since the poll began in 1982. Confidence in the future of the economy fell to its lowest since 1990. Among employers, confidence is at its lowest since 1996, says the Institute of Directors.

Prospects for British manufacturing, whose exports were expected to help keep recession at bay, are faltering; industry is pushing up prices, at the expense of higher sales. Official data indicates that output dropped 0.5% in May.

However, UK production of wood and wood products, and of furniture, expanded, although demand was lower than three months ago. June figures show further signs of rising inflation. Manufacturers’ prices jumped by a yearly 10%, up from 9.3% in May and the sharpest increase since 1986, reflecting a 30.3% annual hike in material and fuel costs. Timber-related costs and prices increased by a more modest 7.7% and 3.1% respectively. For shoppers, inflation continued its upward climb, with furniture prices 11.2% higher on the month, and up 5.8% on June 2007.

Annual earnings growth slowed slightly in the three months to May, tempering concerns of a wage-price spiral. And a rise in unemployment benefit claimants – the biggest in June since 1992 and the fifth consecutive monthly increase – reduced the danger of inflation-busting wage deals, but signals further misery for consumers and suppliers.