Catalina Quarterly Update Executive Summary

Catalina Quarterly Update Executive Summary

Tuesday, April 03, 2018 in Floor Covering Weekly publication

[Highland Beach, Fla.] U.S floor coverings sales (defined as supply, calculated as shipments minus exports plus imports) continued to grow at relatively strong rates in the first quarter of 2018 as homeowners continued to gain confidence from an improving economy. Gains in employment and personal income has given non-moving homeowners confidence to invest in new flooring.

Gains in consumer purchases are finally reflecting the pent-up demand that accumulated over the recession and the weak recovery from 2009 to 2016. This is significant since residential replacement sales represent about 50 percent of total floor coverings sales.

Buyers of existing homes usually drive the residential replacement market; however, existing home sales have flattened over the past year. As a result, floor coverings retailers are increasing their reliance on non-movers. Homeowners are reluctant to sell their home due to rising interest rates and limits on the deductibility of interest and property taxes. Instead, homeowners are spending on home improvements.

Builders also continue to provide growth opportunities despite the slowdown in overall starts. Builders are receiving a boost from stronger gains in single-family starts, which are larger than the multi-family units they are replacing.

Meanwhile, the commercial market could become a drag on floor coverings sales growth since spending on nonresidential building construction is slowing. These trends indicate that U.S. floor coverings dollar sales could have increased by 5.5 percent in the first quarter of 2018. Square foot sales increased an estimated 4.3 percent. These gains are similar to those seen in 2017. Average prices rose an estimated 0.9 percent, the same rate as 2017. Foreign-sourced products continue to make inroads in the market due to competitive pricing. In the first quarter of 2018, square foot imports could have increased by 8.7 percent, while average selling prices rose some 0.7 percent. On the other hand, domestic shipments increased an estimated 0.2 percent, while average prices could have climbed by 2.6 percent.

Domestic and foreign-based manufacturers, however, are both increasing their emphasis on hard surface flooring. Hard surface flooring could have accounted for 55.1 percent of total dollar floor coverings sales in the first quarter of 2018, and 50.0 percent of square foot sales. This is up from 53.4 percent and 48.0 percent, respectively, in the first quarter of 2017. Conversely, soft surface flooring lost ground, especially wall-to-wall carpet. The sharpest industry gains continues to be seen in the resilient flooring sector driven by soaring demand for luxury vinyl tiles, which includes WPC and hybrid products primarily made of plastics. Ceramic tile could have been the number two growth sector in square feet, while wood flooring could have been number two in dollars. Wood flooring is showing stronger gains in dollars as pricing strengthens along with lumber prices.

Floor coverings could continue to increase in the 5.0 percent to 5.5 percent range in dollars and about 4.0 percent in square feet in the second quarter of 2018 since consumer confidence remains on an upward trend as disposable income increases due to the tax cut legislation. Commercial market sales could also receive a boost from the slashing of corporate taxes.

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