Noted economist David Wessel, speaking on a Home Furnishings Association Covid-19 Webinar July 2, forecast a slow recovery – but fellow panelists appeared to surprise him with reports of strong furniture sales now.
“I think the industry as a whole, not just furnishings but the whole home category, has come out of this lockdown at a much higher level than anybody expected,” said Kurt Darrow, chairman, president and CEO of HFA member La-Z-Boy. “We expected when this lockdown began that demand was going to be the problem. Now the problem is supply. … Everybody I’ve talked to is catching up on inventory.”
“I think it caught everybody by surprise how much demand (there was) when we reopened the doors in the furniture category, and I think it’s the home category as a whole,” Matt Schultz added. Schultz is president of HFA member John V Schultz Furniture and co-CEO of newly reopened Levin Furniture stores.
“Everyone was planning a decrease when we opened, thinking the economy would not be as strong for us, and it turned out to be the exact opposite, maybe four times as much demand as we anticipated,” Schultz said.
‘Never seen anything like it’
Darrow said he pinches himself every time he realizes this is traditionally a slow time of year for furniture sales. “I’ve never seen anything like it in my 40-some years in the business, this kind of demand in the summer,” he said.
David Wessel splashed cold water on the celebration, however.
“I think we’re in for a long slog,” he said about the state of the economy. He directs the Hutchins Center of Fiscal and Monetary Policy at the Brookings Institution and writes for The Wall Street Journal. He cited a Congressional Budget Office forecast that it will take two years to reach the Gross Domestic Product level attained before the pandemic struck the United States in March, and that unemployment will remain above 7 percent for that long.
The Labor Department reported July 2 that the economy gained 4.8 million jobs in June. Wessel wasn’t overly impressed.
“What we learned today, after an incredibly sharp and abrupt bottom falling out of the economy in March, is that the economy has begun to recover,” he said. “So, the good news is things are getting better. The bad news is it’s nowhere near good. We’re still down 15 million jobs from where we were in February, and there’s every reason to believe that the snapshot of the job market that the Labor Department gave us today, which covers the middle of June, may be better than we see right now.”
The virus is surging in many states, Wessel noted – and that likely will have a negative impact on the economy. “I worry that when we get the next jobs report a month from now, it won’t be as good as this one, and this one is still pretty bad,” he said.
But, Americans are buying furniture
Yet, defying gloomy assessments of the economy, many Americans have money and are spending it on furniture.
“It’s beyond what anybody ever thought would happen when we were in the depths of being shut down and worried about how long it was going to take us to get to a point where our businesses could be profitable,” Darrow said.
David Wessel didn’t question that reality. “I’m not going to opine on the furniture business in this crowd. I only do that when I’m talking to people who don’t know anything about it,” he joked.
He suggested that people are changing some of their habits.
“Clearly, there are some ways that people spend money that they’re just not doing,” he said. “A lot of people are not going to get on an airplane and take their kids to Disneyland, so they have some money.”
Spending decisions will be altered for some time, Wessel added. For example, airline travel will remain down – not only because of health concerns but because so many businesses have learned they can hold meetings remotely. Travel just doesn’t seem so necessary.
The $600 double-edged sword
Darrow and Schultz cited other theories for increased home furnishings sales. Americans received stimulus checks from the federal government and those who are unemployed draw $600 a week in federal funds on top of state benefits.
Schultz called that a doubled-edged sword. Enhanced jobless pay makes it more difficult to entice employees to return to work, but it also has increased disposable income for many Americans – who spend some of it for furniture.
More time spent at home likely also spurred Americans to make their homes more comfortable and functional. But what happens when circumstances change again?
“We’re not ready to declare victory yet because some of those things can’t last forever,” Darrow said. “But right now I think the home sector is a beneficiary of coming out of a downturn that forced you to stay at home.” People who anticipate additional stay-at-home orders could resolve that “I better make sure I’m not as angry about my home as I am right now,” Darrow said.
Wessel predicted that Congress won’t extend enhanced unemployment benefits at the $600-a-week level after they expire July 31, noting it doesn’t make sense to pay people more for not working than they would earn on the job.
‘The virus is in the driver’s seat’
At the same time, “I think the biggest fear now is that Congress could pull back too soon,” he said. “I’m particularly worried about what’s happening at the state and local level where revenues are way off and Congress has been slow to come to that.” So, further measures from Congress are likely to come.
Yet, there’s an overriding factor: “The virus is in the driver’s seat here,” Wessel said. What’s happening in many parts of the country now is “pretty unsettling,” he added.
“I don’t think we’re going to have another national shutdown unless things get really bad,” he said. “I think we will have some regional shutdowns for reasons that are obvious. If you have an uptick in demand for hospital beds, you’re going to have to do something. … If people feel they’re safe, they’re going to be more likely to go out and buy stuff than if they feel they’re at risk, and that has to do with more than what a mayor or governor writes on a piece of paper.”
The best news, everyone agreed, would be a vaccine or effective treatment for the virus.
The webinar was hosted and moderated by HFA Executive Vice President Mark Schumacher.