US economy from sofa view: fragile, improving

[October 20, 2012]  HIGH POINT, N.C. (AP) -- This year may be a turning point for the furniture industry, which has taken an especially hard hit during the recession as credit was limited and people put big-ticket purchases on hold to pay monthly bills.

That's the growing sentiment for about 75,000 industry insiders who this week crowded into High Point for the world's largest furniture trade show in a city built by furnishings. The past couple of months have seen a collection of government and private data pointing to what seems to be a brightening U.S. economy. Inflation is low. Homebuilder confidence is at its highest level in six years and retail shoppers are spending more.

Most importantly for furniture sales, more Americans are buying and moving into homes that they'll look to furnish, pushing up sales and prices after a six-year slide.

Buyers stocking furniture stores for the coming months seemed more willing to place orders at the High Point Furniture Market that ended Thursday, even if it's too soon to celebrate the recovery of the two-thirds of economic activity that depends on consumers. Nearly 90 percent of those attending the market are U.S. based.

"The last four or five years it was pretty doom and gloom. I'm seeing more optimistic people this time around," said Braden Richter, formerly a furniture manufacturing executive and now CEO of e-commerce retailer LuxeYard Inc. "I'm seeing a lot of fresh product. When times get tough, people keep reshowing the same thing because it costs money to do R&D. It looks like the factories have definitely spent money on R&D, so they must feel good about it, too."

For years, the moderately priced, made-in-America sofas and upholstered chairs turned out by Lancer Inc. battled not only competitors but bigger economic forces. The Sept. 11 terrorist attacks prompted buyers to hold back. During the past decade's good years, furniture manufacturing shifted rapidly to China and other low-cost countries. Then, the housing bubble burst and sales crashed.

Now Lancer's sales are about 12 percent ahead of last year for products that include sofas averaging about $1,000 to consumers, sales vice president Peggy Thompson said.

"Last year was somewhat better, but this year is even better," she said while seated on one of the company's sofas in a showroom at the trade show.

The independent furniture stores who are the major customers of Lancer and other manufacturers are also doing better, according to Sageworks Inc., which compiles financial data on private companies. The furniture stores it tracks saw sales increase by about 3 percent in 2011 after several years of declines, including a 9 percent drop in 2009. In the past 12 months, those small businesses saw sales increase by more than 8 percent and profit margins rise by almost 3 percent.

But it's not an even recovery.

Bassett Furniture Industries Inc. this month reported quarterly profits rose 8.5 percent and profits multiplied nearly five-fold. Furniture Brands International Inc.'s latest quarterly sales dropped 7 percent in the first half of this year and the company lost $6.4 million. The company declined an interview request.

The recession is not over, said Dan White, president of a local investor group that bought Norwalk Furniture's plant and other assets days before the company slid into bankruptcy in 2008. The new company still uses the Norwalk name and employs about 180 in the Ohio town of the same name, but started fresh and without its old retail store network.

Sales are up 16 percent over last year, but the retailers who buy Norwalk sofas averaging from $1,200 to $2,500 are reporting monthly peaks and valleys of consumers opening their wallets, White said.

"It's very erratic and it does in a certain sense track consumer confidence," White said. "There may be these little blips here or there where you see housing starts starting to pick up, but if you look at the rate of housing starts from the mid-2000s to what it is today, it's a shadow of itself."

White and Thompson said one unsettling thing is what happens to taxes and health insurance costs after next month's elections.

"This current atmosphere that we have throughout the country is not a small-business-friendly atmosphere. Like it or not, all of my customers are small-businesspeople. We are a small business," White said.

Robert Deese, another Lancer vice president, said retail store owners shopping the market have repeatedly told him they're delaying purchases until they get more certainty. Lancer is based in Star, about 50 miles south of High Point.

"They've got a little potential to buy, but they're really just not willing to commit until they feel a fraction more secure, either based on the election or seeing more positive figures come out," Deese said.

Once the election is out of the way, next year "should be the best year for furniture sales since 2007" if credit availability, job creation, home sales and buyer optimism continue to improve, furniture analyst Jerry Epperson said in a recent note. If the stock market and auto industry are a guide, the U.S. could have a dramatic economic recovery, he said.

The lack of household mobility that's depressed both housing and furnishings sales over the last four years could be about to change, Epperson wrote.

"Doubt it? Ask the almost 30 million adults now living at home with their parents. They want out," he said.

[Associated Press; By EMERY P. DALESIO]

Emery Dalesio can be reached at http://twitter.com/emerydalesio.

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