Slowdown Seen as

Slowdown Seen as 'Modest, Orderly' 

The current economic and housing market slowdown, while increasingly evident on a number of fronts, has been modest in the view of most analysts, and is not expected to have a significant negative impact on the kitchen and bath market in the short-term future. Among the key statistics released by government agencies and industry-related trade associations in recent weeks were the following:

Remodeling Expenditures
The latest gains in U.S. residential remodeling expenditures continue "to mirror broader economic trends," while remodeling "benefits from and enhances" the nation's economic expansion, analysts at Harvard University's Joint Center for Housing Studies said last month. The latest Remodeling Activity Indicator (RAI) released by the Joint Center revealed that remodeling expenditures by U.S. homeowners increased for the four quarters ending in the third quarter of 2000. "The prospects are for slow, steady growth in remodeling spending by homeowners over the next several quarters," said Kermit Baker, director of the Remodeling Futures Program of the Joint Center. As an indicator, the RAI is derived from four components: manufacturers' shipments of floor and wall tile products; retail sales at building materials and supply stores; sales of existing single-family homes, and the bank prime loan rate. According to the latest figures released by the U.S. Commerce Dept., residential remodeling expenditures reached a seasonally adjusted annual rate of $165.2 billion in the fourth quarter of 1999 an all-time-high.

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities, led by a sharp rise in custom cabinet sales, rose 5.2% in September compared to September '99, the Kitchen Cabinet Manufacturers Association reported. The Reston, VA-based KCMA noted that manufacturers participating in the association's monthly "Trend of Business" survey reported that year-to-date sales were up 9.3% through the first nine months of 2000, compared to the same time frame last year. Year-to-date sales of custom cabinets were up 12.8% through September, while stock cabinet sales were up 8.7%, the KCMA said.

Appliance Shipments
Domestic shipments of major home appliances are expected to set a new record for 2000, and should continue at historically high levels through 2001, the Association of Home Appliance Manufacturers predicted last month. According to the latest forecast issued by the Washington, DC-based AHAM, appliance shipments will reach 64.54 million units this year, breaking the record 62.69 million units of 1999. While 2001 is expected to witness a slight decline in appliance shipments compared to 2000, AHAM's '01 forecast of 64.05 million units, if achieved, would still represent the second-best year on record (see graph, top right). Gains for '01 are being projected for each key appliance category, with the exception of home comfort products.

Home Sales
The nation's housing market "continues to surprise analysts in the face of higher mortgage rates," as sales of existing single-family homes rose to their second highest level of the year as the third quarter got underway, the National Association of Realtors reported. The Washington, DC-based NAR said recent "unexpected" monthly increases in sales of both new and existing homes indicate "solid demand in the housing market." The NAR also observed that it expects the Fed to react to the current benign inflation picture by not implementing any additional interest-rate hikes.

Market Analysis

Raleigh, NC The U.S. construction industry, including residential remodeling and new construction, "should continue rolling on at close to current levels for the foreseeable future," according to the latest in a quarterly series of reports examining the economic health and future of the construction industry.

The report, released last month by the Raleigh, NC-based management and training consultant FMI Corp., concluded that because the current construction industry expansion the longest in history "has occurred more gradually and with less volatility than previous cycles, it's reasonable to expect that it is sustainable for at least the next several years."

FMI pointed out that a number of historical factors "that influence or determine sustainability" are aligned to support the company's forecast. Among them, said FMI, is an "acceptably low" rate of inflation, increasing productivity in all sectors of the economy, and demographics that "continue to reinforce confidence, consumption and the increased investment required for sustained moderate growth."

Among the highlights of FMI's latest report are the following:

  • A prediction that the U.S. economy currently on a "glide path" will continue to drift downward and will execute a "soft landing" about midyear in 2001, at which time it will begin "a rather energetic rebound."
     
  • An expectation that the Federal Reserve will "find it prudent" to raise interest rates once or twice in the next two to three quarters, "until it is satisfied that inflation has been quelled for the next few years."
     
  • A forecast that single-family housing construction will follow the double-digit growth rates of 1998 and 1999, with more modest growth over the next two years. In fact, single-family housing starts are expected to decline from 1999 levels by 2% this year, and another 4% in 2001. Despite the declines, however, the value of single-family residential construction put in place will experience growth, as both home size and prices increase.
     
  • A projection that residential improvements after rising a robust 10% in 1999 will increase by only 2% in 2000 and 1% in 2001.

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