The economy. If ever we needed someone with a crystal ball to tell us where this economy is going, now would be the time to find that person. We’ve been dealing with such confounding elements. Demand for home furnishings is still up even though supply is still down. While that is good news, on the one hand, it is also a bit nerve-wracking. Will sales slow way down or stop? Or will furniture demand remain robust? Those questions are on everyone’s mind because how can you plan for the rest of this year, let alone the first half of 2022 if you don’t have a clear idea of where we are heading?
I connected with David Wessel, a senior fellow at the Brookings Institution and director of the Hutchins Center of Fiscal and Monetary Policy. We dug into the economy and where we are. Here’s the good news. Wessel expects this boom to continue at a minimum through the end of the year and likely well into 2022. Interest rates remain low, while the stock market is high, more vaccines are finding their way into more arms, and consumer savings are up. All of these things bode well for home furnishings retail; however, there are some concerns.
Wessel and his colleagues are cognizant that every boom is followed by a bust or, at the very least, a significant slowdown. On his list of concerns, he says, “we will soon see a withdrawal of fiscal stimulus. Additional unemployment benefits will end, and it is unlikely more individual stimulus checks will be coming.” Then there is this whole question about the strong sales our industry is enjoying.
“I wonder if there is too much spending euphoria that might be over-inflating the marketplace. With supply constrained, if there is too much demand, that will force the Fed to step on the brakes sooner than they expect,” Wessel said. That could spark higher interest rates.
One thing is clear; we are in uncharted territory. You cannot compare this recovery to any other in our history. It’s not like 2008 post-recession recovery or the months after September 11th. This pandemic economy is one of a kind.
A bright spot we need to keep an eye on is new home construction. We all know that when new homes are being built, they need to be furnished, so furniture demand rises. March saw a 15 year high in home starts, and Wessell believes that trend will continue. Maybe not at record rates but a steady increase. He points to the fact that there are moves too in zoning and that the building of accessory buildings is more common thanks to the work-at-home world in which we live. This new home surge should continue for perhaps the next 24 months. We will keep on top of that because that could be huge for your business.
The final thing I asked Wessell is what do we need to watch out for? Are there warning signs that could tip us off to an impending slowdown?
“I would point to a few areas,” he said.
- If we start to see an increase in interest rates in the bond market, we need to care about that if they rise more than expected.
- If prices heat up across the economy.
- Congressional inaction. If any bipartisan items can be passed, that is a good thing. If not, there are concerns.
- If US/China relations become disruptive, then that will negatively impact trade, and furniture would take a hit.
- I am concerned about trade friction. If it grows and some tariffs aren’t rolled back, it will negatively impact the economy.
I am not trying to be a killjoy here. As I mentioned, sales are still strong, and they are expected to remain that way for a while. I just want to make sure we’re all armed with good information about what to look for that points to a slowdown. It’s always better to be prepared.