Economic Outlook - June 2008
Appliance Markets Sluggish in The Near Term
The U.S. appliance industry remains stuck in the throes of a two-year downturn that has seen domestic production fall 15% from its peak in 2006. But the good news is that the decline is decelerating, which indicates that it will soon hit bottom and will start the recovery phase shortly thereafter. Appliance output was down 8% in the first quarter of 2008 compared with the same period a year earlier. We forecast a more moderate decline of 2% in 2008 followed by a 4% to 6% rise in 2009.
THE ENGINE IS HOUSING
This forecast is based on the prevailing trends in the residential construction and real-estate sectors. Demand for appliances is greatly affected by housing starts, new and existing home sales, and remodeling activity. All of these sectors are suffering at present. Like appliances, housing starts are also in a two-year recession, and it is clear that the downtrend still has some distance to go. New housing starts plummeted 25% in 2007 and are down 30% so far in 2008. This rate of decline should moderate in the second half of this year, but our latest forecast still calls for a total decline of 10% in 2008.
The depth of the decline in sales of existing homes and remodeling activity is not quite as extreme as the housing-starts plunge, and it appears as if these segments are reaching a bottom. The large inventory of unsold houses should be mostly absorbed by the end of this year. But house prices will continue to fall for at least another two to three quarters, and this means that consumer spending will be restrained by decreasing home equity until 2009.
A GOOD SIDE TO OIL PRICES
Despite all the near-term issues in the construction and real-estate markets, some other factors are having, or soon will have, a significant positive effect on the demand for household appliances. One of these is the slumping value of the U.S. dollar. At the current exchange rate, many goods and services produced in the U.S. are a bargain for foreign buyers, while goods and services produced overseas are now quite expensive for American consumers. The rise in fuel prices also means the cost of shipping is now a major factor. All these conditions favor U.S. manufacturers of appliances and parts at the expense of their foreign competitors.
Soaring energy prices will have another favorable effect on market demand for appliances. Manufacturers have long been able to produce more energy-efficient household appliances, but the market has not been willing to pay a premium for this type of equipment—until now. In a recent survey conducted by the National Association of Home Builders, the majority of respondents answered that they would be willing to pay more for features that increased energy efficiency. Quieter operation will be another factor in high demand.
Related Content
-
Plastics Processing Contraction Continues
Contraction dominated the GBI index for overall plastics processing activity and almost all components, collectively suggesting a slowdown.
-
Plastics Processing Activity Near Flat in February
The month proved to not be all dark, cold, and gloomy after all, at least when it comes to processing activity.
-
Plastics Processing Contraction Slows Slightly
While the market is still sluggish, future business outlook rose significantly from last month.
