Michael A. Dunlap & Associates unveils the results of its July 2019 Quarterly MADA / OFI Trends Survey, a unique tool that measures the current business activity of the commercial (office, education, healthcare, & hospitality) furniture industry and its suppliers. This survey was completed during the month of July 2019 and marks the 58th Edition. The Survey first began in the summer of 2004.
The survey focuses on ten key business activities and respondents rate each area on a scale of 10 (the highest) to ONE (the lowest). These include Gross Shipments, Order Backlog / Incoming Orders, Employment Levels, Manufacturing Hours (Overtime verses Reduced Hours), Capital Investment, Tooling Expenditures, New Product Development Activity, Raw Material Costs, Employee Costs, and the respondents' Personal Outlook on the industry.
The unique element of this survey is the establishment of an Industry Index Number to quantify where the industry is currently performing. For example, an index of 100 means that things “couldn't be better”, an index of ONE is “absolutely the worst” it can be, and an index of 50 means it is neutral; no change up or down.
The July 2019 survey highlights:
Overall Index
58.90 = July 2019 Index
54.58 = April 2019 Index
59.31 = January 2019 Index
55.11 = 58 Survey Average Index
The July 2019 Survey Index of 58.90 is just slightly above the 58 survey average. Nine out of 10 index values improved from the previous quarter. With the exception of Gross Sales and Order Backlog are within normal or acceptable values. The highest recorded Index of 59.72 in July 2005. The lowest was 41.45 in April 2009 during the bottom of the recession.
Gross Shipments Index:
74.00 = July 2019 Index
57.73 = April 2019 Index
64.40 = January 2019 Index
58.49 = 58 Survey Average Index
The July 2019 index jumped more than sixteen points to 74.00. It is important to recognize this reflects the rate of change over the 1st Quarter, which was unusually low below the 58.49 survey average and the previous six months. This may reflect a distorted image of the actual situation. The previous all-time high and low were in July 2018 (66.86) and July 2009 (41.40).
Order Backlog Index:
71.50 = July 2019 Index
55.00 = April 2019 Index
67.92 = January 2019 Index
57.99 = 58 Survey Average Index
The July 2019 Order Backlog Index of 74.50 also jumped by more than sixteen points over the 1st Quarter and is the highest recorded index in this category.
January 2019 was previously the highest we have experienced since the survey began in 2004. It was well above the 58 survey average and was remarkably very strong. Like its sister Gross Shipments Index, the quarter-over-quarter increase is significant, but
may distort the actual image.
We will continue to watch these two index values very closely during the 3rd and 4th quarters of 2019.
Employment Index:
57.00 = July 2019 Index
55.00 = April 2019 Index
55.20 = January 2019 Index
52.69 = 58 Survey Average Index
The Employment Index measures the degree of increase or decrease in employment levels. The July 2019 Index 57.00 improved by 2.0 points and is well above than the 58 survey average.
Hours Worked Index:
61.67 = July 2019 Index
56.11 = April 2019 Index
59.58 = January 2018 Index
56.05 = 58 Survey Average Index
The Hours Worked Index is closely tied to the Employment Index. When the Hours Worked Index exceeds the mid 50's (usually due to overtime), the following 1-2 quarters often see increases in the Employment Index.
The July 2019 Hours Worked Index is the highest we have experienced sinc July 2017.
We view this is still reflective of the inability to fill both entry level and skilled positions which are still are driving up hiring and hours worked. Overtime remains the norm, not the exception.
Capital Expenditures Index:
54.74 = July 2019 Index
54.29 = April 2019 Index
61.20 = January 2019 Index
55.91 = 57 Survey Average Index
Historically, the Capital Expenditures Index has steadily been in the mid to upper 50s. The April 2019 slipped by almost nine points over the January Index and July 2019 has shown little change. It is slightly lower than average. The all-time high was 64.74 in April 2017.
Tooling Expenditures Index:
52.78 = July 2019 Index
52.50 = April 2019 Index
57.50 = January 2019 Index
56.43 = 58 Survey Average Index
The Tooling Expenditures Index tends to remain very steady from quarter to quarter and typically tracks along with Capital Expenditures, but the continued below average index during the 2nd Quarter is an unpleasant surprise. As a benchmark, the April 2017 Index of 66.65 was the previous all-time high.
New Product Development Index:
61.05 = July 2019 Index
59.55 = April 2019 Index
64.40 = 2019 Index
63.26 = 58 Survey Average Index
The July 2019 rebounded by 1.5 Index points, after the April 2019 Index declined by almost six points. Both are below the 58 survey average, but returns to the low 60s. The highest we have experienced was the April 2015 Index of 69.70,
Raw Material Costs Index:
44.44 = July 2019 Index
45.91 = April 2019 Index
47.40 = January 2019 Index
44.87 = 58 Survey Average Index
Many commodity prices in the 2nd Quarter of 2019 continued to increase. More tariffs were felt during this quarter that were not reflected in the 4th Quarter of 2018 or 1st Quarter of 2019.
The current index indicates that material costs have steadied and are near the 58 Survey average. We suspect that this will worsen in the 3rd and 4th Quarters of 2019.
Employee Costs Index:
45.26 = July 2019 Index
43.33 = April 2019 Index
48.33 = January 2019 Index
46.53 = 58 Survey Average Index
Much like its companion Raw Materials Index, the Employee Cost Index is rarely above 50.0. Although higher healthcare costs are the most frequently identified issue that contributes to higher costs, Wage increases this quarter (again) appear to have exceeded healthcare costs. We expect this continue as long as we have a shortage of qualified labor and overtime is required to meet customer demand.
The Personal Outlook Index
64.00 = July 2019 Index
65.91 = April 2019 Index
66.54 = January 2019 Index
59.18 = 58 Survey Average Index
Although it slipped slightly from the previous quarter, this index has remained over 61 for the past 22 Quarters. This is remarkable and most certainly gives a boost to the Overall Index.
Dunlap commented:
“We feel good about where the industry is currently. The effects of the next round of tariffs are still too early to predict, but it is reasonable to believe that it will dampen 3rd and 4th Quarter numbers. The overall economic growth will likely affect this industry.
“In spite of the 1st Quarter declines, we believe that the industry remains very strong.
“We are surveying many more than five or six companies. The “Big Nine” are generally doing very well. However, it is the smaller “under $50.0 Million sales and fewer than 250 employees” companies that are driving this industry.
Outlook is 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 continue to be tariffs, travel, transportation and logistics costs. Healthcare costs have been the most commonly cited concern from respondents since this survey process was started in August 2004.
As always, Dunlap thanked the respondents with this comment. “Over 60 percent of the responses come from “C” level executives who are the Chairman, CEO, COO or President of their organizations. I am always extremely grateful for their participation and support. Their suggestions and recommendations continue to be helpful to the performance and content of this unique survey.”
The July 2019 MADA / OFI Trends survey was sent to more than 525 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 October 2019.