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Print ArticleYou don’t have to be an economist to see that the U.S. economy is hurting. In most cases it takes nothing more than a review of your P&L statement to know that 2008 was a less-than-stellar year for the surfacing industry. And anyone not barricaded into their shop should have heard about all of the recent economic troubles still trickling down. So, it should come as no surprise to hear that 2009 will be another tough year.
However, given we have a new president and a new Congress, in addition to all of the things the federal government has been doing to try to offset the credit crisis brought on by the sub-prime mortgage fiasco, it is very difficult to forecast with any certainty what 2009 will look like. Chances are, though, any gains that might be seen in the surfacing industry will be relatively small.
Back in December we heard made official what many already knew — we are in a recession. The National Bureau of Economic Research (NBER), the group that officially determines when a recession starts — and ends — announced on Dec. 1 that the current economic situation is a recession. The definition used by the NBER was “a significant decline in economic activity spread across the economy, lasting more than a few months.” However, the usual, textbook, definition for a recession — two consecutive quarters of decline in the Gross Domestic Product (GDP) — had not been met at that point, as both Q1 and Q2 of 2008 experienced growth. But, in light of the lack of activity in the last quarter of 2008, by now even that definition has likely been met. The recession officially began in the fourth quarter of 2007 and is still in full effect. Economists predict the recession will last at least until the middle of 2009.
Of course, the government has put forth a number of policies and taken several actions to try to put things back on course, but so far with little effect. “While we are making progress, the journey ahead will continue to be a difficult one,” said Treasury Secretary Henry Paulson in late 2008.
These sentiments were echoed by Federal Reserve Chairman Ben Bernanke, who said, “In spite of the efforts of the Federal Reserve and other policymakers, the U.S. economy remains under considerable stress.”
The recession can be seen not only in a stock market that is down around 40 percent, but also in shrinking sales, dropping home values, escalating unemployment (6.9 percent at the time of this report) and reduced spending on both new construction and home improvements. Economists at Goldman Sachs issued a report in November estimating GDP will have finished down 5 percent for the last quarter of 2008, and will see another 3 percent decrease in the first quarter of 2009 and 1 percent decrease in the second quarter of 2009, likening it to the declines seen in the recession of 1982.
At the end of 2007, the Freedonia Group, a research firm, put out a report detailing statistical trends in “Residential Kitchen & Bathroom Countertops,” which made some predictions as to demand for countertop materials through 2011 (see Figure 1). And while the numbers for 2007 and beyond seemed relatively dismal at the time, it is probably fair to believe that at least through 2009 they are the best the industry can hope for.
A look at cabinet sales, a good indicator of countertop sales, shows a pretty steep decline. In October 2008, cabinet sales were down 22.8 percent compared to sales in October of 2007, according to the most recent available statistics released by the Kitchen Cabinet Manufacturers Association (KCMA) at the time of this report. The association’s monthly Trend of Business Survey showed stock cabinet sales decrease 17.5 percent, semicustom sales decrease 26.5 percent and custom sales down 29.2 percent in that month. According to that same report, 2008 year-to-date sales showed a decrease of 17.8 percent, with stock sales down 18.5 percent, semi-custom sales down 16.9 percent and custom sales down 18.7 percent.
HOME IMPROVEMENT/ REMODELING
Whereas this time last year, the retail/remodeling market seemed like the place to be in comparison to the collapsed residential construction market, it isn’t such a bright spot going into 2009, although still brighter than residential building.
