A new CBI poll of timber and wooden product firms reveals that a balance (ie the difference between the percentage of firms expecting an increase and those reporting a decrease) of 47% predicts the volume of new orders will shrink over the next three months. Sixty-two per cent of businesses expect their volume of output to fall over the same period. For furniture producers the outlook is slightly worse; 66% predict lower order volumes, and 72% expect output to fall.
Confidence has declined compared with three months ago for 100% of timber and wooden product manufacturers. In October 2007 the figure was 80%. Among furniture manufacturers, the comparable figure now is 77%, against 97% in the earlier poll.
Consumer confidence
Meanwhile, confidence among consumers fell to a near record low in January, and the measure of savings intentions took a significant hit but was accompanied by a small rise in the major purchase intention index, according to pollsters NOP GfK.
In the high street, the volume of furniture sales fell by over 8% annually in the fourth quarter of 2008, bringing total sales for the year down by 6% compared with 2007. In value terms, business contracted by more than 4% over the year to the three-months to the end of December. The annual rate of decline in 2008 was 2%.
Despite heavy discounting the new year started “with a whimper”, says the CBI, as overall retail sales continued to fall sharply. For furniture outlets, however, the picture was less bad than in December when a balance of 90% saw a fall in year-on-year sales volumes; in January the corresponding figure was 38%.
A forecast, compiled by Oxford Economics before the full extent of the downturn had emerged, predicted that the value of consumer spending on furniture will fall by 6.8% and 3.1% annually in 2009 and 2010 respectively, before growing by 1.7% in 2011. The volume of spending is forecast to drop by 7.7% this year and by 4.3% next year.
Furniture output
On the supply side, UK output of furniture dropped by a massive 15.6% in the year to the fourth quarter of 2008, and fell by 20.7% annually in the final month of the year.
Official figures on new construction orders suggest that total volumes fell by 9% in the three months to November and by 27% over the year. Orders for private sector housing were down by 3% in the latest quarter and by 66% year-on-year. In the commercial property sector new orders fell by 35% in the quarter to November and by 58% on the year.
Unsurprisingly, demand prospects for construction-related timber products remain grim. Results of the latest CIPS/Markit purchasing managers’ survey reveal that procurement activity reduced sharply in January and output across all sectors dropped steeply, although the earlier sharp contraction in new order intake eased slightly. Despite this, the first quarter of 2009 opened with a rise in business optimism in the construction industry, albeit it remains “very subdued” in comparison with historic data.
Economic recovery
With the UK now officially confirmed as being in deep recession, the green shoots of economic recovery – which are unlikely to appear before next year – will be heralded by a sustained increase in the availability of credit, and stabilisation followed by a pick-up in consumer and business confidence.
Before that, however, the outlook is extremely difficult. The respected International Monetary Fund expects the UK economy to plummet by 2.8% this year – the worst contraction among advanced nations. The Ernst & Young Item Club, which uses the same economic forecasting model as the Treasury, says the housing market will remain in “dire straits”, probably until the end of 2010. And the squeeze on the consumer will continue this year as the labour market weakens and spending is slashed by 2.6%.
