The business indicators published in June paint a mixed picture of conditions in the timber industry’s principal markets. The recovery in housing appears to be weakening, while the recent improvement in high street spending looks unlikely to continue in the long term in the face of rising calls on consumers’ finances.

The National House Building Council received 13,900 house applications in April, a 12% increase on the same month last year. Private sector applications were up 13% and housing association applications were up 8%. But house prices rose by a meagre 0.1% in May, according to the Halifax bank, sharply lower than the 2% increase in April.

Although the number of new mortgage approvals in May was the second highest on record, the number of property sales agreed has faltered. Further down the supply chain, the volume of new, private sector housing orders placed with contractors fell by 1% between the three months to April and the previous three months, and was down 14% compared with the same period last year.

Housing orders

The Department of Trade and Industry estimates that orders in the public housing and housing association sector fell by 12% in the three months to April, but rose 18% on the year. Construction orders overall fell in real terms by 4% in the latest three-month period.

Construction activity measured by the Chartered Institute of Purchasing and Supply continued to rise in May, but only commercial activity increased during the month, while it fell in the residential construction and civil engineering sectors. Significantly, the rate of job creation in the industry was the weakest since August 2002, and optimism in the industry was the lowest for nine months.

UK production of sawmilling and planing dropped by 13% in the year to April, while builders’ carpentry was down 2%. Kitchen furniture production rose by nearly 10%, but output of other furniture dropped 16%.

Manufacturers’ prices of wood and wood products increased overall by 1.4% in the year to May. In the high street, consumers had to pay 2% more for furniture in May than a year earlier, following a 1.5% price increase during the month. By contrast, the British Retail Consortium says that the shop price of furniture fell for the second consecutive month in May as discounting continued.

In a separate report, the BRC says furniture sales showed slower growth during May than in April, although demand for garden furniture improved. A CBI survey indicates that nearly a quarter of furniture and carpet retailers saw lower sales volumes compared with May 2005. Both organisations report a rise in overall retail sales in May, but this may reflect the purchase of products ahead of the World Cup, and continued heavy discounting.

The volume of furniture and lighting sales in May was 4% up on the year but in value terms sales were 4% lower. The overall upturn in retail sales was maintained in May, boosted by demand World Cup-related goods.

Consumer confidence

But other indicators are less optimistic. Growth in consumer credit is on the wane, and consumer confidence remains fragile. And amidst weak earnings growth, a continued increase in unemployment, higher utility charges, and rising inflation expectations, consumers are showing clear signs of a reluctance to spend, suggesting that there will be no early return to a high street or housing boom.

The wider picture is no brighter. As Bank of England governor Mervyn King warned of a “bumpier” time for the world economy, business services firm Experian said the eurozone is the least likely area to provide cushioning due to its fragile recovery and sensitivity to higher interest rates and the dollar’s weakness.