I believe this is my tenth annual “state of the industry” article. In the past, I have always looked at specific segments of our market and relied heavily on trade organization projections to develop an overall forecast for the secondary wood industry. This year I am going to take a little different direction. Since virtually our entire industry is tied either directly or indirectly to the overall construction market, we would do well to look at that market as an indicator of where our varied market segments are headed in 2014.
First, let me define what I mean as the “construction industry.” The construction industry means the industry in its entirety: residential, commercial, institutional, public, and private. It is appropriate to do that since so many of our products are directly related to much of the industry, plus the overall health (and buying power) of our customer base is influenced by the health of the construction industry.
Looking first at housing: Robert Denk of the National Association of Home Builders (NAHB) states: "We are seeing some great percent increases, but we are still short of where we would like to be.” Denk states the “normal” (and I believe sustainable) market to be about 1.3 million annual starts. The NAHB is forecasting 1.15 million starts for 2014, up from about 924K in 2013.
Dragging on the recovery, only 74.9% of adults age 25-34 are currently employed. That is up from a low of 73.6% but still below the pre-recession rate of 79.3% employment. Young adults need jobs to pay off student loans, move out of the family home, and eventually become homeowners. The home building industry depends on household creation. The housing market cannot fully recover with so many buyers “missing”.
Robert Murray, Chief Economist at McGraw Hill Construction predicts that spending for educational buildings will reverse from a negative 3.4% in 2013 to a positive 3.0% in 2014. Further, he sees health care going from a minus 2.8% in 2013 to a plus 2.0% in 2014. The institutional building market is expected to recover from this year’s decline of 4.4% to a 2% increase.
The Associated Builders and Contractors, Inc. (ABC) predicts a 6% overall increase in construction next year. Anirban Basu, the ABC's Chief Economist, expects 5% growth in commercial construction, 8% in the lodging industry, and 7% in health care. These are all good omens for the millwork and furniture sectors.
The Business and Institutional Furniture Manufacturers Association (BIFMA) is predicating modest growth in production of 3.2%. That moderate rate might be due to the changing office furniture market as much as the overall rate of office construction and remodeling.
One of the brightest spots in the economy is manufacturing. Manufacturing increased moderately in 2013 and shows continuing growth indicators for 2014. Ford recently announced plans to add 5,000 workers in the US this year. The trend toward re-shoring continues to accelerate. Companies with sales over $1 billion engaged in re-shoring more than doubled year over year in 2013.
There are two key elements we need to be aware of in these forecasts: first, this growth creates jobs, good paying jobs. That means increased sales of consumer goods and overall economic health. Secondly, some of those jobs will be filled from already strained segments of the labor market. Our industry is going to be facing increasing competition for qualified workers in many areas.
The moderate rate of recovery could have a beneficial impact for industry in general. If management is looking longer term, it will take advantage of this moderate growth to assure they have qualified people to support their own recovery. Some of those people will be new hires and some will be current people who have been re-trained to fill new positions. A faster recovery could also bring significant inflationary pressure to the labor market.
One thing is certain; the ones who benefit the greatest will be the ones who have positioned themselves the best. Are you well positioned?