Demographic trends & the US flooring industry
Wednesday, May 25, 2022 from Floor Covering Weekly
For anyone who’s been awake in the last five years, the state of the global economy has been chaotic. From 2017-2019, the economy was as strong as it had been in decades, only to begin a dramatic, though brief, nosedive in early 2020. Then in 2021, the economic engine seemed to start roaring again only to start sputtering early this year. To say it’s been a tumultuous ride understates the issue.
It’s easy to assume the current symptoms are the problem. But the problems we are experiencing today — supply chain instability, inflation and rapidly changing monetary policy — are just that, symptoms of deeper problems. The seeds of these issues were sown three and four decades ago. While the symptoms may change, the problems will persist for decades to come.
One of the largest problems is the rapidly aging demographics facing developed economies. For an economy to grow, there must be a balance of consumers and producers. This balance necessitates a growing population that skews to the younger end of the spectrum. An aging populace creates a lack of producers and tends to grind down growth as workers retire and begin pulling money and other resources from the economy.
Internationally, this is an issue in nearly every developed economy. In Europe and Asia, demographics have largely been skewing older over the last several decades. In Germany, an economic powerhouse, the number of individuals in their 50s is roughly double the number of pre-teens. Similar population dynamics are playing out in Japan and South Korea.
If the data provided by their governments are accurate, both Russia and China have been in a net population decline since the early 90s. However, more recent data seems to indicate their demographics are much worse. In the coming decades, these economies simply don’t have enough people to continue growing.
Domestically, the picture is a bit brighter. The Boomer generation largely differed from their international counterparts by having significantly more children. On average, Millennials are now in their mid-30s and are fast approaching their peak earning, production and consumption years. The last time this happened with a generation as large as the Millennials was when their Boomer parents hit a similar milestone in the early 90s, helping propel the country’s economic growth.
So, what is the impact of these trends?
Globally, expect to see continued disruption as developed economies adjust to an evolving balance between production and consumption. This will continue to fuel labor shortages, supply chain breakdowns and more inflation. And that’s before we factor in global shortages in energy, agricultural products and many natural resources.
These disruptions were inevitable regardless of the existential shock produced by the COVID-19 pandemic in early 2020. However, what would have taken a decade without COVID-19 has taken only months in a world with it. It’s important to note that disrupted isn’t the same as disabled. There will still be a global economy. It will just look very different, and more desperate, than we have ever experienced.
The U.S. stands to be the benefactor of these changes. As the least globally-dependent developed economy, there are few resources that cannot be secured within North America. And with the lion’s share of global capital, many businesses will continue relocating back to the U.S. Combine these factors with the economic tailwind provided by the Millennial generation, and we have a recipe for tremendous growth.
Within the U.S., the real estate market will be among the chief benefactors. With record low levels of existing home inventory, new home sales growth is expected to be in the high single digits in 2022. With this backdrop, it’s hard to envision a real estate market that doesn’t continue expanding.
However, given the global concerns already discussed, supply chains will continue to be problematic, especially for products sourced internationally. It’s a good time to secure multiple vendor relationships, and by all means, some domestic ones.
Growth in the residential sector, in general, and the flooring industry has been extremely strong. While I expect the industry to continue to grow, I do expect the rate of that growth to moderate as interest rates rise. As business owners, we will be wise to stay nimble enough to adjust as the market reverts to a slower, long-term growth rate within the industry.
The outlook for multi-family housing is strong and should remain so for the next several quarters as construction picks up. Finally, commercial real estate — while more fragmented — is generally picking up across the board, and I expect this growth trend to continue. Market researcher IBISWorld projects the market size of the U.S. commercial real estate industry to increase 4 percent in 2022.
Nathan Corbitt is partner and director with the Business Owner Transition Academy. He focuses his time on helping business owners grow the value of their business, and ultimately to make it into the ELITE 3 percent of business owners who are able to transition their business on their terms, by maximizing value and without regret. He can be reached at [email protected].