The October 2018 quarterly Michael A. Dunlap and Associates Office Furniture Industry trends survey showed the furniture industry remains solid with an overall strong and steady index, according to Michael Dunlap.
“I feel good about where the industry is currently,” Dunlap said. “2018 will finish on the same path, but the current political uncertainties, the effect of the mid-term elections, tariff and trade questions and the resulting economic climates still make predictions into 2019 uncertain.”
The survey measures business activity of the commercial (office, education, health care and hospitality) furniture industry and its suppliers.
“During the second quarter, the slowdown with some of the large public companies indicated a general decline in the industry performance,” Dunlap said. “At MADA we disagreed, and we continue to be bullish.
“We are surveying many more than five or six companies. The growth is coming from the smaller, under $50 million sales and fewer than 250 employees. I am still pleased to see the strength of the personal outlook index. It's a purely emotional question but we put a lot of value on this content.”
The most frequently cited perceived threats to the industry's success are tariffs, transportation and logistics costs, steel prices, and general material costs. Health care costs have been the most commonly cited concern from respondents since the survey was started in August 2004.
The survey focuses on 10 business activities, and respondents rate each area on a scale of 10 (the highest) to one (the lowest). An index of 100 means things “couldn't be better,” and an index of one is “absolutely the worst.” An index of 50 means it has not changed.
Here are the October 2018 survey results:
Gross shipments index: 60.37 October 2018; 58.13 average. This is significantly above the average. The previous all-time high and low were in July 2018 (66.86) and July 2009 (41.40).
Order backlog index: 60.74 October 2018; 57.63 average. This is well above the 54 survey average and very strong. (The July 2018 order backlog index of 66.57 was an all-time high). This is seen by MADA/OFI as a positive indicator for industry sales for the fourth quarter of 2018 and into the first quarter of 2019.
Employment index: 52.22 October 2018; 52.53 average. This index measures the increase or decrease in employment levels. It is slightly lower than the 55 survey average. In West Michigan and many other industry locations, labor shortages are driving up wages but increased hiring remains steady.
Hours worked index: 60.42 October 2018 index; 55.89 average. This is closely tied to the employment index. When it exceeds the mid 50s (usually due to overtime), the following one to two quarters often see increases in the employment index. This is an anomaly as hours worked are higher, but employment is lower. MADA/OFI thinks this is reflective of the inability to fill both entry level and skilled positions, which drive up hiring and hours worked. Overtime is now the norm, not the exception.
Capital expenditures index: 52.31 October 2018; 55.87 average. Historically, the capital expenditures index has steadily been in the mid to upper 50s. The October index is significantly lower than average. This will be monitored closely in future surveys. The all-time high was 64.74 in April 2017.
Tooling expenditures index: 54.81 October 2018; 56.55 average. The tooling expenditures index tends to remain very steady from quarter to quarter and typically tracks along with capital expenditures, but the significant decrease during the third quarter is a surprise. It is notable the April 2017 index of 66.65 was the previous all-time high.
New product development index: 60.38 October 2018; 63.35 average. The 60.38 index is well below the 55 survey average. This is a surprise. The highest experienced was the April 2015 index of 69.70.
Raw material costs index: 37.69 October 2018; 44.81 average. Many commodity prices in the third quarter of 2018 have increased significantly, primarily due to the increased import tariffs. Through 2015 and into 2016, the average was 50.95. The current index indicates material costs will likely dampen profitability unless selling price increases can offset these additional costs. This is not a likely scenario, according to the MADA.
Employee costs index: 45.77 October 2018; 46.58 average. Much like its companion raw materials index, this 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 appear to have exceeded health care. This is expected to continue as long as there is a shortage of qualified labor.
The personal outlook index: 64.81 October 2018; 58.84 average. The strong index is good news as it has remained over 61 for the past 19 quarters. MADA describes this as “remarkable” and said it certainly gives a boost to the overall index.
Overall index: 54.98 October 2018; 54.98 average. This was dampened primarily by the raw materials index and employee costs indexes. MADA/OFI noted it can be said October 2018 is “just an average month,” but that would be very dismissive of a very good quarter. Ten elements affect this index. The highest recorded index was 59.72 in July 2005, and the lowest was 41.45 in April 2009 during the bottom of the recession.
More than 64 of the responses come from C level executives who are the chairman, CEO, COO or president of their organizations. The survey was sent to more than 500 individuals involved with the commercial furniture industry's manufacturing and suppliers from Africa, Asia, Australia, Europe, North and South America and from companies ranging from more than $1 billion in sales to less than $500,000 in sales. The survey repeats in January 2019. It was completed during October 2018.