Increased Demand for Furniture and Appliances Collides with Ongoing Supply Issues

Amidst a hot U.S. housing market and a rush of home renovations as more Americans shift to working from home on a permanent basis, we continue to see elevated demand for furniture and appliances. This ongoing surge in demand is being met with a variety of supply chain issues that are causing lengthy delays in deliveries and soaring prices. Let’s examine the factors that are driving these market dynamics.

Demand Shows No Signs of Abating

While both new and existing home sales have retreated from the highs we saw at the beginning of the year, many of those home sales led to increased demand for new furniture to fill those newly purchased, often bigger homes. Retail sales at furniture and home furnishings stores have remained relatively flat in recent months; however, August sales at these stores are up 15.6% compared to August 2020 and up 23.9% compared to August 2019. Note that part of the reason for the flat sales may be the supply chain issues which are limiting furniture inventories at retailers. We’ll discuss that in more detail below.

Newly constructed homes need new appliances. Monthly housing starts are averaging an annual rate of 1.59 million units for the first eight months of 2021. Analysts surveyed by FactSet are projecting a total of 1.575 million starts for the year, a 12.8% increase over 2020 and the highest annual total since 2006. Reflecting the active home construction market, August retail sales for appliances showed an increase of 18.1% compared to August 2020 and were up 9.0% from August 2019.

On top of robust home sales, the strong home renovation activity that started when homeowners were under lockdowns early in the COVID-19 pandemic has only increased over the last 18 months. According to the U.S. Census Bureau, the value of improvements to residential buildings put in place totaled $257.9 billion (seasonally adjusted annual rate) in July. This was up 7.7% from July 2020 and up 32.8% compared to July 2019. This has only added to the demand for new home furnishings as homeowners look to improve their home living and working spaces. In addition, with so many people stuck at home during lockdowns and continuing to work from home in 2021, the increased wear and tear on existing furniture and appliances may have only accelerated the need for replacements.

This trend will continue into next year according to the latest Leading Indicator of Remodeling Activity (LIRA) report from the Joint Center for Housing Studies of Harvard University (JCHS). This indicator projects that annual gains in homeowner improvement and maintenance spending will accelerate in the second half of 2021 and remain elevated through the middle of 2022.

Global and Domestic Supply Constraints

On top of the surge in consumer demand, furniture and appliance retailers continue to face numerous supply constraints. The problems start with the manufacturers, who are experiencing production delays due to shortages of parts including everything from semiconductor chips to stainless steel. Complex global supply chains are being disrupted as COVID-19 hot spots develop around the world and manufacturing is slowed by increased safety protocols. We’re also in the midst of a global shipping-container shortage and the shipping boat accident in March that blocked a major route in the Suez Canal had significant ripple effects on global supply chains for months.

At the same time, ports on the West Coast of the United States are clogged as they struggle to process the flood of imported goods as consumer demand rebounds. The Port of Los Angeles and the Port of Long Beach handle approximately 40% of all inbound containers for the entire U.S., with significant traffic from Asia. The year-to-date volume of imports is up 29% at both ports compared to the first eight months of 2020, and it looks like 2021 is poised to be a record-setting year. Compared to 2018, which was the peak year for imports at both California ports, 2021 year-to-date imports are up 23.1% at the Port of Los Angeles and 15.7% at the Port of Long Beach.

Meanwhile, other supply problems have their source right here in the U.S. The February 2021 winter storm that knocked out power plants across Texas and Louisiana also impacted the manufacturing facilities in the region producing the chemical ingredients for foam, a key input in furniture production. The domestic foam shortage has led to a spike in producer prices; the price index for foam products used in furniture and furnishings was up 18.1% year over year in August. All of this is exacerbating shortages of imported finished furniture and parts, which is being acutely felt by consumers. Anecdotal evidence indicates low inventories at retailers and long wait times for custom orders.

Price Pressures for Consumers

All of these factors are putting significant upward price pressure on home furnishings. Consumer prices for furniture and bedding saw a year-over-year increase of 9.5% in August while appliance prices jumped 4.3% compared to a year ago. These are contributing to the increases in overall CPI of 5.3% and in core CPI (excluding food & energy) of 4.0% year over year.

Conclusion

Pandemic-induced disruptions continue to define global supply chains. The U.S. market for furniture and appliances provides a great example of how the interconnectedness of markets can have acute impacts on individual economies.

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