U.S. floor coverings sales could have turned the corner in the fourth quarter of 2023 after seeing declining sales over the first three quarters of the year. Based on monthly data, Catalina estimates U.S. floor covering manufacturer dollar sales (shipments minus exports plus imports) could have increased by 0.7 percent in the fourth quarter, while square foot sales could have risen by 1.9 percent. This compares to a 7.1 percent decrease in dollar sales and an 8.9 percent drop in square foot sales over the first three quarters of 2023. Total 2023 sales could have declined by 5.2 percent to $34.9 billion. Square foot sales could have dropped by 6 percent to 27.4 billion.

The fourth quarter turnaround reflects a rebound in new home construction as interest rates decreased, while an estimated 4 percent to 5 percent gain in square foot import shipments indicated an increase in manufacturer sales. The increase in square foot imports could indicate retailers have begun to order products to replenish their inventories after spending a year working off an oversupply. A full floor covering sales recovery, however, will not occur until existing home sales show significant increases, since the turnover of an existing home drive consumer floor covering spending and consumer spending accounts for close to 50 percent total U.S. industry sales.

The commercial market, however, remains the strongest growing end-use market since non-residential building construction spending continues to increase at double-digit sales. The hospitality and healthcare markets could have led the commercial gains in the fourth quarter.

Builder purchases could have rebounded in the fourth quarter since single-family housing starts could have increased over 25 percent compared to the same period of the previous years. Builder purchases received a boost from lower interest rates and the lack of existing homes offered for sale. In addition, the construction of a single-family home uses more than twice the square foot feet of flooring than the typical multifamily housing unit built.

The lack of existing homes for sale, however, has hurt consumer floor covering spending. Consumer floor covering spending could have declined by 5 percent in the fourth quarter of 2023. Consumer spending remained weak since existing home sales continue to decline. In fact, existing home sales declined by only 7.7 percent in November, after declining by double-digit rates over the first ten months of 2023.

Weak consumer floor covering spending continues to hurt the sale of wood and laminate flooring since their sectors rely heavily on residential replacement sales. On the other hand, the ceramic tile market is benefiting from a turnaround in builder purchases. The ceramic tile sector is also benefiting from relatively strong price increases. Meanwhile, the resilient flooring and soft surface sectors received a boost from an increase in square foot imports. Resilient flooring square foot sales also reflect continued gains in the LVT market. Weak import prices, however, held back dollar sales gains.

The soft surface sales gain could reflect sharp increases in area rug import shipments in the fourth quarter. Area rug imports reflect retailers re-stocking inventories. Retail rug inventories were cut over the past 18 months after the domestic supply expanded significantly during the pandemic. Soft surface sales also benefit from rising carpet tile sales, which benefits from growing commercial demand.

Total U.S. floor covering sales could continue this modest turnaround in the first quarter of 2024 due to rising builder purchases and continued gains in non-residential building construction. However, consumer spending could remain sluggish until the Federal Reserve cuts interest rates in the first or second quarter, a development the agency telegraphed at their December meeting. This could result in an increase in existing home sales in the second half of 2024. Consumer spending, however, may not immediately respond to the increase since historically it takes six to 12 months after the turnover of an existing house for the new owner to undertake a flooring replacement project.