Following a weak first quarter, Michael A. Dunlap & Associates’ latest report shows an uptick in eight of 10 major activities in the furniture industry.
The Holland-based consulting firm released the results of its July 2019 quarterly MADA/OFI (Office Furniture Industry) Trends Survey on Aug. 2. The report, which began in 2004 and is in its 58th edition, measures the current business activity of the office, education, health care and hospitality furniture industry and its suppliers.
The survey — which will repeat in October — was sent to more than 525 individuals involved with the commercial furniture industry’s manufacturing and supply chain from Africa, Asia, Australia, Europe, North America and South America, with companies ranging from $500,000 to $1 billion-plus in sales.
In the survey, MADA focuses on 10 key business activities, and respondents rate each area on a scale of 1-10, from lowest to highest.
The activities include gross shipments, order backlog/incoming orders, employment levels, manufacturing hours (overtime vs. reduced hours), capital investment, tooling expenditures, new product development, raw material costs, employee costs and the respondents’ personal outlook on the industry.
The survey uses index numbers to quantify how the industry currently is performing. An index of 100 means things couldn’t be better, an index of 1 is absolutely the worst and an index of 50 means it is neutral — no change up or down.
Michael Dunlap, owner and president at MADA, said he did an unusual thing this quarter and compared the survey results to two previous quarters instead of just one, since he considered the Q1 2019 results, in which all indexes fell, to be a “dramatic” anomaly.
Eight out of 10 index values in the Q2 report improved from the previous quarter, and the July 2019 overall index of 58.90 is just slightly above the survey average, he said.
With the exception of gross sales and order backlog — which jumped by more than 16 points apiece — Dunlap said all are within normal or acceptable values compared to the survey averages.
“In spite of the first-quarter declines, we believe that the industry remains very strong,” he said.
Raw materials costs continue to rise, according to the survey results, coinciding with the slight decline in respondents’ “personal outlook” — which is a “purely emotional question” that measures sentiment of top industry executives, Dunlap said.
He added it’s reasonable to believe tariffs will dampen even further the third and fourth quarter raw materials costs indexes.
The increase in the number of hours worked and the employment index, which measures the degree of increase or decrease in employment levels, indicate the tight labor market continues, Dunlap said.
“We view this is still reflective of the inability to fill both entry-level and skilled positions, which are still driving up hiring and hours worked. Overtime remains the norm, not the exception,” he said.
The most frequently cited perceived threats to the industry’s success were tariffs, travel, transportation and logistics costs, according to the survey.
July 2019 survey highlights
Gross shipments index*: July 2019, 74; April 2019, 57.73; January 2019, 64.40; survey average, 58.49; previous all-time high and low: July 2018, 66.86, and July 2009, 41.40
*The July 2019 gross shipments index jumped more than 16 points to 74, reflecting the rate of change over the first quarter, which was unusually low — below the 58.49 survey average and the previous six months, Dunlap said, adding “this may reflect a distorted image of the actual situation.”
Order backlog index*: July 2019, 71.50; April 2019, 55; January 2019, 67.92; survey average, 57.99; previous all-time high, January 2019, 67.92
*The July 2019 order backlog index of 71.50 also jumped by more than 16 points over the first quarter and is the highest recorded index in this category, also distorted by the first-quarter anomaly, Dunlap said.
He added he will continue to watch the index values of gross shipments and order backlogs “very closely during the third and fourth quarters of 2019.”
Employment index: July 2019, 57; April 2019, 55; January 2019, 55.20; survey average, 52.69
Hours worked index*: July 2019, 61.67; April 2019, 56.11; January 2019, 59.58; survey average, 56.05
*The hours worked index is closely tied to the employment index. When the hours worked index exceeds the mid-50s, usually due to overtime, the following one or two quarters often see increases in the employment index, Dunlap said. The July 2019 hours worked index is the highest since July 2017.
Capital expenditures index: July 2019, 54.74; April 2019, 54.29; January 2019, 61.20; survey average, 55.91; all-time high: April 2017, 64.74
Tooling expenditures index*: July 2019, 52.78; April 2019, 52.50; January 2019, 57.50; survey average, 56.43; all-time high: April 2017, 66.65
*The tooling expenditures index tends to remain steady and typically tracks along with capital expenditures, but the continued below average index during the second quarter is “an unpleasant surprise,” Dunlap said.
New product development index*: July 2019, 61.05; April 2019, 59.55; January 2019, 64.40; survey average, 63.26; all-time high: April 2015, 69.70
*The July 2019 index rebounded by 1.5 index points after the April 2019 index declined by almost six points. Both are below the survey average but return the index to the low 60s, the survey average.
Raw material costs index*: July 2019, 44.44; April 2019, 45.91; January 2019, 47.40; survey average, 44.87
*The lower the number indicated by this index, the higher the supply costs. Many commodity prices in the second quarter of 2019 continued to increase as “tariffs were felt during this quarter that were not reflected in the fourth quarter of 2018 or first quarter of 2019,” Dunlap said. “We suspect that this will worsen in the third and fourth quarters of 2019.”
Employee costs index*: July 2019, 45.26; April 2019, 43.33; January 2019, 48.33; survey average, 46.53
*Much like its companion raw materials index, the employee costs index is rarely above 50. Although higher health care costs are the most frequently identified issue that contributes to higher costs, wage increases this quarter again appear to have exceeded health care costs, Dunlap said. “We expect this to continue as long as we have a shortage of qualified labor and overtime is required to meet customer demand.”
Personal outlook index*: July 2019, 64; April 2019, 65.91; January 2019, 66.54; survey average, 59.18;
Although it slipped from the previous quarter, “this index has remained over 61 for the past 22 quarters,” Dunlap said.
Overall index: July 2019, 58.90; April 2019, 54.58; January 2019, 59.31; survey average, 55.11; all-time high and low: July 2005, 59.72, and April 2009, 41.45