Floor Coverings Sales Trends

U.S. floor coverings manufacturer sales (shipments minus exports plus imports) continued to decline in the third quarter, however, at a more moderate rate. Dollar sales could have declined by 4.3 percent in dollars and 4.4 percent in square feet. This compares to an 8.1 percent drop in dollar sales and a 9.5 percent decrease in square feet in the first half of 2023. The moderation in the sales decline reflects a more favorable business environment for builders due to the lack of existing homes for sales, and continued gains in commercial sales. The important residential replacement market, however, remains the weakest part of the industry. The residential replacement market has felt the brunt of the sharp increase in interest rates as the Federal Reserve works to bring down the inflation rate. In addition, distributors and retailers continue to work off excess inventories accumulated in 2022 as consumer demand weakened along with rising interest rates.

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Commercial market gains have been able to offset some of the decline in residential markets during 2023. The strength in commercial sales reflects double-digit gains in private and public non-residential building construction spending. Commercial floor coverings sales, however, lagged overall non-residential building construction spending since the surge in construction activity has primarily been in industrial markets, instead of the more robust commercial flooring markets such as hospitality, office and retail markets. Construction spending in these markets was closer to high single-digits over the first three quarters of 2023.

Builder purchases could have been declining in the low single-digits over the first three quarters of 2023, allowing this market to gain share. Builders benefited from the lack of existing homes for sale and owners holding onto their low interest mortgages and stayed put. Meanwhile, the residential replacement market has been a challenge to manufacturers and retailers. Consumer floor coverings purchases (excluding installation costs) could have declined at double-digit rates, in manufacturers’ dollars, over the first three quarters of 2023.

The sharp decline reflects a nearly 21 percent drop in existing home sales so far during 2023, the key driver of residential replacement sales. The U.S. housing market has become frozen by a more than doubling of mortgage rates over the past 18 months. This resulted in a drop in residential improvement construction spending. Weak consumer demand has led to double-digit declines in carpet and rug and wood and laminate flooring during 2023, since these industry sectors have an above average dependence on residential markets. In the third quarter, however, ceramic tile and wood and resilient flooring were able to gain share. Ceramic tile and wood flooring benefited from better performing builder demand and resilient flooring continued to receive a boost from growing commercial LVT sales.

Suppliers of foreign-sourced products have been hurt by the decline in U.S. floor coverings demand during 2023. Dollar floor covering imports could have declined at double-digit rates over the first three quarters of 2023. On the other hand, U.S. floor covering factory shipments could have increase in the single digits. Domestic manufacturer shipments are benefiting from the sharp gain in LVT production. The re-shoring of U.S. LVT sales primarily reflects a sharp drop in LVT shipments from China and other Asian countries. Dollar LVT and other resilient flooring imports declined by 44.2 percent from China and 25.5 percent from Vietnam over the first seven months of 2023. China and Vietnam accounted for 78.4 percent of total LVT and other resilient flooring imports over this period.

Part of the sharp drop in Chinese LVT imports reflects enforcement of the Uyghur Forced Labor Prevention Act, which restricts imports of goods manufactured in the Chinese Uyghur region. Sourcing is also moving closer to the United States to cut down on transportation costs. This could be seen in the 42.7 percent increase in total floor coverings shipments from Mexico over the first seven months of 2023.

A weak housing market will keep U.S. floor coverings demand sluggish in the fourth quarter of 2023. The main headwind for floor covering manufacturers and marketers will be the Federal Reserve’s decision to keep interest rates higher for longer. The high rates will continue the contraction in residential markets and could cause recessionary pressures to move through commercial markets.