Nearly 50% of furniture makers polled by the CBI are less optimistic about the outlook for the industry than they were three months ago. The remaining 50% see no change in the outlook. In the previous survey in October a net 22% of firms were less optimistic than a quarter before.

Reasons for the pessimism are not hard to identify. A balance of 43% of firms says order books are below normal for the time of year; 67% are working below capacity; and 20% expect the volume of new orders to fall over the next three months and their volume of output to drop. And while 35% predict that domestic orders will be booked at higher prices, 39% expect their costs will rise.

But consumer confidence received a fillip in January, with a sharp improvement in the climate for major purchases, and a boost in overall optimism to levels last seen in November 2002. But pollster GfK Martin Hamblin warns that a rise in confidence generally occurs in January.

Sales volumes

Nonetheless the latest CBI survey of furniture retailers shows that in January sales volumes were lower than a year earlier for a net 16% of stores. This follows year-on-year volume growth for 43% of outlets in December, and compares with a balance of 60% achieving higher annual sales in January 2004. Over the three-month period November to January volumes were up compared with a year before for an average of 14% of furniture retailers. In the previous three months to October an average of 54% reported higher annual sales, and in the quarter to January 2004 an average 28% achieved year-on-year sales growth.

Sales volumes fell over the year to January 2005 for a net 3% of retailers overall, says the CBI, following growth for 33% in the year to December. Retailers expect a small increase in sales in the year to February, but at levels still below normal for the time of year.

Official figures indicate that retail sales volumes fell in most categories in December, reinforcing anecdotal evidence that the Christmas period was at best mixed, and poor for many businesses. At the annual rate sales volume growth slowed to 4.9% in the fourth quarter, compared with 6.3% in the previous quarter.

The volume of sales by household goods retailers was up 4.8% annually in the fourth quarter of last year, down from a rise of 8.2% in the year to the third quarter. Sales of household goods were up 1.4% by value in the year to the fourth quarter, compared with a rise of 7.1% in the third quarter.

Government estimates suggest that the value of consumer spending on furniture and furnishings (excluding carpets) was 7.9% higher in the third quarter of last year than at the same time in 2003. This followed an annual rise of 4.8% in the year to the second quarter of 2004. The total value of furniture sales in the first nine months of last year was up by 6.2% compared with the same period the previous year.

Spending rise

Remove the effect of retail price changes, and allow for seasonal variations, and the figures for spending on furniture reveal an annual rise of 7.2% in the year to the third quarter of 2004 – up from a 2% annual increase in the second quarter. On this basis of measurement the volume of demand in the first nine months of 2004 was 0.5% lower than a year before.

Imports of wooden furniture from the EU in the third quarter of last year rose in value by 46% compared with the same time in 2003, and were up 27% year-on-year in the first three quarters of 2004. EU demand for UK-made wooden furniture increased by 14% annually in the third quarter and was 12% higher in the nine months to September.

Looking ahead, Oxford Economic Forecasting predicts that total consumer spending growth will ease in 2005 to 2.6% from 3.3% last year and to 2.3% in 2006. OEF’s expectation is that demand for furniture will rise in volume terms by 2% this year but by only 0.7% in 2006. In value terms this translates as increases of 4.1% and 2.7% this year and next respectively.