Optimism in the timber and related industries improved at the beginning of the year, while the housing market shows few signs of cooling, and consumer spending in the high street remains strong.

In a new survey by the CBI, 5% of wood product manufacturers are more optimistic about the business situation than they were three months ago. Among furniture makers the figure is 2%. But even these modest signs of cheer are sharply better than in mid-2003, when the number of pessimists outweighed optimists by 9% in the timber sector and by 35% in furniture.

Admittedly the latest soundings were taken ahead of this month’s rise in interest rates, but the snapshot of wood product manufacturers, apart from furniture makers, reveals 15% expecting their order books to fatten over the next three months. However, a similar percentage says total order books are below normal. Some 40% forecast an increase in output over the coming months.

On production costs, 40% of wood product manufacturers expect an increase over the next quarter but 50% plan to raise prices for the domestic market, suggesting a weakening of pressure on margins compared with six months ago. Among furniture makers, costs of production are expected to fall by 22% of firms surveyed, and prices are expected to fall by a similar number.

Furniture manufacturers

Forty-five per cent of furniture manufacturers say they are working below capacity, but 7% are hopeful of increased output in the first quarter, with domestic demand flat but export deliveries set to rise. Six per cent say order books are below normal but 13% forecast an improvement in new orders over the next three months.

Growth in the housing sector, seasonally adjusted, slowed in January to a pace last seen in July 2003, according to a Chartered Institute of Purchasing and Supply/NTC Research survey. The trend was repeated in commercial construction, but in civil engineering, activity grew at a similar rate to December. Even so, the construction industry increased the quantity of materials and components purchased, albeit at the slowest rate for seven months, and it reports a strongly optimistic outlook for 2004.

Official figures on high street sales in December point to a 0.9% volume increase compared with November, and an annual rise of 4%. In the fourth quarter volumes were also up 4% annually, and were 1.9% higher than in the third quarter. Sales by household goods stores rose 8.7% in the year to December, and were up 6.6% year-on-year in the final quarter.

The CBI says that sales in January were well above average for the time of year, and most sectors maintained or improved on their December performance. Furniture retailers saw a 3% annual decline in volumes during December turn into a 60% increase – the strongest expansion for more than a year.

The latest poll by Martin Hamblin GfK, also taken before the rise in interest rates, indicates that consumers started the new year more optimistic than they ended 2003. The headline index stands at 0, having risen from -5 in December. The increase was driven by improved expectations about the general economic situation over the next 12 months, and by improvements in the index that measures intentions to make major purchases – up from +5 in December to +22 in January.

Spending forecast

But the respected National Institute of Economic and Social Research forecasts that consumer spending will grow only 2.3% this year and 1.6% in 2005, the lowest in 10 years. Further, it warns that consumer price inflation will rise to 1.8% by the final quarter of 2004, just under the new official target of 2%. This will prompt a further hike in interest rates, which most observers believe will reach around 4.5% by the end of the year.