The Economics of Furniture, Part I

I am an economist in the financial industry. This is the first part of a series that I will dedicate to analyzing the economics of furniture. In short, I'll take a top down look at the industry from a macroeconomic point of view. A note to readers: if I use any terms here that are unfamiliar to you, please comment or send me an Email. I may build a glossary here at A Wilder Finish.

Within the context of the global economy, the US economy is considered a large open economy. What that means from an economic point of view is that we participate in the global financial and economic markets but are price setters. Basically, US policy matters for the rest of the world. For example, as the United States Federal Reserve Bank lowers interest rates, global rates in Germany or the UK fall as well. I am not here to discuss monetary policy - you could go to various other blogs in order to get that sort of information: David Beckworth's blog, Scott Sumner's blog, or Barry Ritholz's blog on markets and economics. And if you wish to read on the theory of Money, please see Randy Wray's blog.

How do the furniture goods and services industries fit in to the construct of the US economy? In short, furniture (the kind that you care about) is a small portion of US consumer spending.

Selling your furniture and offering repairing and refinishing services accounts for about 0.84% of all consumer spending (the largest component of US GDP) in the United States, according to the Bureau of Economic Analysis. Total furniture and furniture services amounts to 97 billion of a total of $11.5 trillion spent on consumption goods in the US. As you can see in the chart below, the share of furniture and furniture repair, refinish (and repair of floor covering) has been declining since the 1980's.

Click on the chart for a closer view.

While the trend has been down since 1981, the US housing market crash took its toll on furniture and furniture services - the share of furniture in total consumption dropped from 1.05% in 2007 to just 0.84% in 2013. In real terms - real terms means that the statistical agency focuses on the output impact and adjusts the series for changing prices - furniture sales and services in refinishing and repairing has improved slightly increased $7.6 bn in the fourth quarter of 2013 compared to the fourth quarter of 2013. This amounts to a 7.8% growth in spending on furniture and furniture services.



So what's the outlook? Pretty good, in my view. There's potential for the furniture and furniture related services industries to regain much of the lost momentum as the housing market recovers. There's a high correlation between US housing starts and furniture and furniture related services, +80% over the last 30 years. Housing starts grew 19% in 2013.

When houses are built, people need to furnish them. To the extent that homes were built in 2013, there will be a latent demand for furniture and furniture services moving into 2014 (blue line should rise with the green line). However, there's also scope for growth in new housing starts in 2014. Bill McBride's blog, Calculated Risk, outlines a balanced yet positive view on US housing going forward.

I hope that this helps to put the furniture industry into perspective. I'll be writing more about the economics of the furniture industry in future posts.

Bex Wilder