The United States furniture industry is a relatively mature cyclical industry with long-term growth highly dependent on population and income growth. There were 21,523 companies in the industry in 2002. This is not unexpectedly large in view of the large number of categories included in the furniture industry. Relatively few manufacturers are in more than one of the above listed categories. Due to the widely different conditions in each of the categories, the number of manufacturers and industry concentration in each furniture category varies widely. For example, wood kitchen cabinet and countertop manufacturing accounts for 9,452 companies, nearly 44 percent of the total. This is due to the localized nature of that business category. At the other extreme is household furniture, except wood and metal, which accounted for only 178 companies.
The biggest long-term challenge facing the furniture industry is increasing imports. These have risen sharply in recent years as the industry has globalized. In the past two decades, several countries such as China, India, Russia and the Eastern European countries have entered the global market and joined the World Trade Organization if not already a member. Also encouraging imports has been falling tariffs rates, first through such tariff reduction programs as the Generalized System of Preferences (GSP) and the North American Free Trade Agreement (NAFTA) and then, pursuant to the Uruguay Round negotiations, through zero-for-zero tariff reductions for major exporting countries. The result is that today furniture entering the United States enters duty-free. However, duties are still applicable for the related products of mattresses and blinds and shades. Those products were not included in the negotiated zero-for-zero furniture tariff reductions. Nevertheless, imports of those products from many countries are eligible to enter duty-free pursuant to many other trade agreements including NAFTA, GSP, and several bilateral trade agreements with countries such as Australia, Chile, and Singapore.
Currently, several negative factors point to a major downturn in furniture shipments for 2008 and 2009. While many of these factors would be sufficiently important to seriously impact the industry individually, together they have created a perfect storm for the economy in general and the furniture industry in particular. These factors include a peaking and subsequent fall in the price of housing that resulted from the housing price bubble in many parts of the country. This has had a cascading effect on demand for housing as many holders of subprime mortgages defaulted when they were unable to sell or refinance their homes as interest rates for variable rate mortgages increased. Many potential home buyers decided to wait for expected lower prices. As demand and sales of housing declined, many over-extended home builders went bankrupt due to excessive raw land and housing inventory, falling prices, and tightening bank credit. The market for securitized mortgages collapsed with rising mortgage default rates. Investors around the world were affected including banks, pension funds, hedge funds, as well as individuals. Many large well-known institutions, such as the Federal National Mortgage Association and Federal Home Mortgage Corporation, Merrill Lynch, American International Group, Lehman Brothers, Countrywide Financial, IndyMac Bank, and Washington Mutual, were forced to close, be acquired by other institutions, or to sell debt or partial ownership to the U.S. government. As the crisis deepened, the stock market peaked and began a major decline beginning in October 2007. By October 2008, the stock market had fallen by 48 percent at one point during the month from its intra-day high in 2007. U.S. unemployment rose to a 6.7 percent rate in November 2008 while consumer defaults on credit cards, automobile and student loans increased. Many banks were forced to cut lines of credit to businesses and consumers due to losses of capital reserves. Consumer confidence plunged as a result with sharp declines in all types of retail sales.
To boost the economy, the federal government sent economic stimulus payments to more than 124 million households beginning in May 2008. Payments ranged from $300 to $600 per eligible individual. However, the beneficial effects had disappeared by the third quarter.
The U.S. economy shrank at a 0.3 percent annual rate in the third quarter, its sharpest contraction in seven years as consumers cut spending and businesses reduced investments in the face of rising fears of a recession. Consumers cut spending on durable goods like cars and furniture at a 14.1 percent annual rate in the quarter. Housing starts are an important factor in furniture sales. Housing starts, which were 1,474.0 thousand in 1997, rose steadily until peaking in 2005 at 2,068.0 thousand. Housing starts then dropped 12.9 percent and 24.7 percent to 1,800.9 thousand and 1,355.0 thousand in 2006 and 2007, respectively. Housing starts totaled 864.4 thousand through November 2008 compared to 1,286.1 thousand through November 2007, a decline of 32.8 percent. A turnaround for housing starts is not expected soon since at year-end 2008, approximately 10 percent of all mortgages outstanding were either delinquent or in foreclosure. In addition, prices were still declining rapidly in many parts of the country at year-end. In spite of the declines to that point, many analysts still considered housing overpriced in relation to incomes. So, further declines in housing starts were expected.
November 2008 retail sales declined an estimated 7.4 percent from the year before in current dollars while October sales were down 8.5 percent. December Christmas sales were reported as quite weak by most retailers and many store closings and retail bankruptcies were forecast for early 2009. The poor retail sales were attributed to the weak job market and to greatly reduced mortgage equity withdrawals by homeowners.
Furniture product shipments increased from $61.1 billion in 1997 to $80.5 billion in 2006. Adjusted for inflation the increase was 1.2 percent per year over the nine year period in constant dollars. Product shipments in 2007 and 2008 are estimated to have declined 3 and 10 percent, respectively, in constant dollars. With the economy expected to be weak at least through the first half of 2009, product shipments are expected to decline again in 2009.
Between 1997 and 2006 total employment in the furniture industry initially rose 6.2 percent from603,700 employees in 1997 to 641,000 employees in 2000 before declining 18.9 percent to520,100 employees in 2006. Overall, the decline from 1997 to 2006 was 13.8 percent. Buckingthe trend, wood kitchen cabinets employment increased 46.0 percent to 145,000 employeesduring the nine year period reflecting the housing construction boom. At the other extreme, employment for non upholstered wood household furniture fell 44.0 percent to 71,500 employeesdue to increased imports. During 2007 and 2008, total estimated industry employment declined an additional 4.6 percent and 7.3 percent, respectively, to 496,300 and 460,000 employees.
In international trade, dumping is the act of a manufacturer in one country exporting a product toanother country at a price which is either below the price it charges in its home market or isbelow its costs of production. Under U.S. law, antidumping duties will be imposed when theDepartment of Commerce (DOC) determines that the foreign merchandise is being, or is likely tobe, sold in the United States at less than fair value, and the International Trade Commission(ITC) determines that an industry in the United States is materially injured or threatened withmaterial injury by reason of imports of that merchandise. A domestic firm, union, or certainother groups or associations can petition the DOC and the ITC for relief from dumping.
On January 4, 2005, following an antidumping investigation, DOC published an antidumping duty order on wooden bedroom furniture from China. The China-wide duty charged was 198.08percent unless it was determined in the investigation that a particular Chinese manufacturershould have been charged a lower rate. Most of the named manufacturers were charged a duty of6.65 percent although a few were charged other rates, ranging from 0.83 percent to 15.78percent. Since the antidumping order was issued, two annual administrative reviews of the orderhave been conducted and a third is ongoing. The completed reviews have resulted in someminor changes in the duty charged to certain companies as well as a change in the China-widerate to 216.01 percent.