Floor covering sales weak in first half of 2019

Floor covering sales weak in first half of 2019

Monday, July 8, 2019 from Floor Covering Weekly

[Delray Beach, Fla.] According to the latest Catalina Research Quarterly Update, U.S floor coverings manufacturer sales (shipments minus exports plus imports) could have declined in the first half of 2019. This would be the first drop in sales since 2010. Manufacturer sales declined after a surge in foreign-sourced flooring sales in the second half of 2018. Foreign-sourced product sales surged in the second half as distributors and retailers rushed through orders to beat the higher tariff charges on flooring sourced from China. Higher tariffs on Chinese-sourced products is important since Chinese-made flooring accounted for some 22.0 percent of total U.S. floor coverings dollar sales in 2018.

The surge in import shipments, however, occurred as a recession hit the U.S. housing market. Existing home sales declined over 2018 and new residential construction began to decrease in the second half of 2018. The sharp increase in interest rates in 2018 sparked the housing recession. This caused consumer floor coverings spending to weaken in the second half of 2018. Meanwhile, housing demand continued to drop in the first half of 2019 despite the retreat in interest rates. Homebuyers are only now beginning to respond to the drop in interest rates.

As a result, consumer floor coverings spending did not recover in the first half. Consumer floor coverings spending turned sluggish in the fall of 2018 and remained weak through the first half of 2019. Weak consumer spending caused supply chain inventories to swell. Therefore, distributors and retailers cut orders in the first half. This caused manufacturer sales to contract. Dollar manufacturer could have declined by 0.3 percent in the first half of 2019, while square foot sales could have dropped by 2.0 percent.

The decline was especially sharp in the carpet and rug sector. The carpet and rug market was hurt the most by the steady decline in existing home sales. Existing home sales drive residential replacement sales and the carpet and rug market has the highest dependence on residential replacement sales. The surge in luxury vinyl tile (LVT) sales also adversely affected wall-to-wall carpet sales as consumers continue to increase their preference for hard surface flooring. In the first half of 2019, carpet and rug manufacturer sales could have declined by 4.2 percent in dollars, and 6.5 percent in square feet. The decline was even sharper in the second quarter. As a result, carpet and rugs could have accounted for only 41.8 percent of total U.S. floor coverings dollar sales in the second quarter of 2019, and 47.3 percent of total square foot sales. This is down from 44.4 percent and 50.2 percent, respectively, in the second quarter of 2018.

Meanwhile, manufacturer hard surface flooring sales continued to rise. Manufacturer hard surface flooring sales could have increased by 2.9 percent in the first half of 2019, and square feet sales could have increased by 2.5 percent. Double-digit gains in resilient flooring led the increase. Resilient flooring’s relatively sharp gains were the result of a continued surge in LVT sales. LVT sales could have been growing about 40.0 percent per year in dollars and square feet in 2018 and 2019. This strong growth has taken the air out of the gains in the other hard surface flooring sectors. In the first half of 2019, ceramic tile sales declined slightly, while wood flooring and laminate flooring sales dropped sharply. Rising prices also adversely affected wood flooring sales. Prices rose as the International Trade Commission imposed additional anti-dumping tariffs and manufacturers continued to push through the rising lumber costs experienced in 2018.

Floor coverings sales could remain sluggish in the second half of 2019 since the U.S. housing market remains weak. Even if housing demand begins to recover in the second half of 2019, there is usually a six to 12 month lag between the rise in housing demand and the recovery in consumer floor coverings sales. As a result, U.S. floor coverings manufacturer sales could decline in dollars and square feet during 2019. This would be the first drop since 2010.

Builder and consumer markets remain weak despite the decline in interest rates. Mortgage rates are now at their lowest levels since September 2017. However, the drop has not yet sparked a sharp rebound in U.S. housing demand. U.S. housing demand could remain on a downward trend in the third quarter and not show any meaningful recovery until the fourth quarter. These trends could keep consumer floor coverings spending gains close to 2.5 percent during 2019. Manufacturer sales, however, could decline slightly as the supply chain works off excess inventories. As a result, U.S. floor coverings manufacturer sales could decline during 2019 for the first time since 2010.

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