Catalina Research has released its Quarterly Update Executive Summary.

According to the summary, the U.S floor coverings industry is finally showing signs of life after lackluster trends over the first three quarters of 2019. Floor coverings sales are strengthening due to the turnaround in U.S. housing demand as interest rates declined. U.S. housing demand increased an estimated 3.0 percent in the second half of 2019 after experiencing a 5.4 percent decline in the first half. These positive trends are expected to continue into 2020 since mortgage rates are some 20 percent below late 2018 levels. At the same time, consumer confidence is on the rise due to continued gains in employment and income. Meanwhile, strengthening builder and residential markets are offsetting a more sluggish commercial market. Commercial market sales are being adversely affected by a drop in nonresidential building construction spending since the second quarter of 2019.

The strengthening housing market has showed up in fourth quarter 2019 sales. According to the summary, U.S. floor coverings manufacturer sales (shipments minus exports plus imports) could have increased in dollars by 3.2 percent in the fourth quarter of 2019. This is up from only a 0.9 percent gain over the first three quarters of 2019.  On a square foot basis, sales could have been flat in the fourth quarter after experiencing a 1.3 percent decline over the first three quarters of 2019. For the entire year, total U.S. floor coverings dollar sales could have reached $27.7 billion, a 1.5 percent increase over the previous year. Square foot sales could have declined by 1.0 percent to 23.7 billion.

The industry’s strength was centered in luxury vinyl tile (LVT) products, while sales of all other flooring products declined. Catalina said in 2019, LVT sales could have increased by over 25 percent in dollars and square feet (Catalina Report on LVT and Other Resilient Flooring). On the other hand, sales of all other flooring products could have declined by 2.9 percent in dollars and 5 percent in square feet, Catalina said, adding the weakest performing sectors were carpet and area rugs, laminate flooring and wood flooring. Conversely, the ceramic tile sector was able to make some inroads in the face of soaring LVT sales.

The surge in LVT sales contributed to an overall increase in foreign-made flooring sales. According to Catalina, total dollars floor coverings imports increased by 3.5 percent over the first nine months of 2019, accounting for about 42 percent of total U.S. sales. This is up from an import share of 41.8 percent over the first nine months of 2018. The increase is primarily due to a 27.1 percent increase in resilient flooring imports. All other flooring imports, in dollars, dropped by 6.9 percent, Catalina added. Non-resilient flooring imports declined due to the 25 percent tariff charge on Chinese-made flooring by the Trump administration. Rising tariff charges caused non-resilient flooring imports from China, in dollars, to drop by about 25 percent over the first three quarters of 2019. However, imports of Chinese-made resilient flooring increased by some 24 percent since Chinese manufacturers dominate global capacity to produce rigid core LVT, such as WPC and SPC.

Chinese-made LVT may continue to play a dominate role in the U.S. market since the U.S. Trade Regulative gave exemptions to click LVT flooring and some engineered wood flooring with a stone-plastic composite core. Sourcing, however, has seen some movement away from Chinese manufacturers due to the added tariff charges. An increasing share of foreign-sourced products are now coming from Brazil, Spain, South Korea, Turkey and Vietnam (Catalina Report on Floor Coverings Industry Trends and End-Use Markets). Chinese companies are also investing in U.S. production capacity.

The shift to non-Chinese sourcing may reduce price pressures since the 25 percent tariffs on Chinese-made flooring resulted in stronger price increases. According to the summary, average flooring manufacturer selling prices could have increased by 3.5 percent in the fourth quarter of 2019. This is some the strongest pricing gains over the last five years, Catalina added.

The combination of a stronger housing market and moderating price increases is a formula for stronger floor coverings sales growth during 2020.