Furniture analysts see upside to downturn.

Despite the obvious disappointment of the recent slowdown in orders and shipments, all is not doom and gloom for residential furniture manufacturers.

Even though industry analysts -- Joseph Logan, director of Finance and Economic Research, for the American Furniture Manufacturers Assn., and Jerry Epperson, partner of Mann, Armistead & Epperson Ltd. -- do not see a quick return to the double-digit growth that the furniture industry experienced in 1993 and 1994, they do see signs of long-term prosperity.

Following are Logan's and Epperson's views to questions posed by W&WP News Editor Larry Adams.

W&WP: During the 1992 presidential election race, the economy was the central theme of the Clinton campaign. As we head into the 1996 presidential campaign year, what are your economic projections for the residential furniture industry and why?

JOSEPH LOGAN: Based on our economic projections, we see single digit growth for the residential furniture industry in both 1995 and 1996. AFMA is projecting a 6.1 percent increase in manufacturer shipments of residential furniture for 1995 and a 6.9 percent jump in the following year. Though we will not see the double digit increases we were fortunate enough to have enjoyed in 1993 and 1994, the industry will continue to grow at a slightly slower pace, reaching $22.5 billion in industry shipments in 1996.

We foresee a healthy economy for the United States through the 1996 election year with personal disposable income increasing 3.6 percent in 1995 followed by a 2.3 percent increase in 1996. The increasing personal disposable income combined with an improved national economic landscape will bolster consumer confidence, which will definitely benefit the residential furniture industry. Although housing variables, such as resales and housing starts, will not reach the levels they did in 1994, during this year and in 1996 the residential furniture industry will continue to benefit from home purchases made in the recent past. We will also benefit from the healthy, though more moderate housing growth through the next year.

The baby boom generation is also in the midst of its peak furniture buying years and the impact of inheritances that this generation will receive over the coming years will definitely be a shot in the arm for the residential furniture industry. With interest rates moderating as well, the housing market and furniture industry will benefit as consumers are more willing to make housing purchases and purchases of larger ticket consumer durables, such as furniture.

JERRY EPPERSON: The economy has been programmed to slow down since the Federal Reserve's decisions of February 1994 to keep inflation minimal and to slow growth so the cycle could be extended. In our opinion, this has been an incredibly complex effort because of the extremes that exist among the various regions of the US. Some regions are very healthy but others are in recession-like declines.

Like in 1985, the furniture industry has just had two years of strong back-to-back sales gains and was preparing for a third, budgeting the assets to handle another 5-10 percent sales gain. Consumers, who had significant deferred demand after the recession, took advantage of the 1991-94 interest rate decline to purchase homes, autos, furnishings, etc., using credit at a rapid, near record level. The combination of this new massive load of indebtedness and higher cost debt triggered a slowdown in consumer confidence and spending this spring. The degree of the slowdown was somewhat surprising, and retailers and manufacturers who had prepared for gains were caught off guard, leading to severe inventory imbalances. Again, this is all much like 1985.

W&WP: There have been reports of residential furniture companies closing plants and cutting back on shifts and hours. Have you found this to be the case? If so, what will be the impact in both the short and long term for the industry?

LOGAN: Some of our members are indeed cutting back on shifts and hours through the summer months. We anticipate, based on our projections, that the market for furniture will strengthen in the fall months and we will see a move back toward longer shifts and hours.

We do anticipate further consolidation and change in the industry over the coming years. Those companies that have built and maintained strong customer retailer relations will survive while those who are not on solid financial footings may pass from the scene. The sale of Masco Home Furnishings as well as the sale of four of the LADD Furniture divisions will have a dramatic impact of the residential furniture industry.

EPPERSON: The inventory overhang has resulted in major downtime over both the Memorial Day holiday and July Fourth for many manufacturers.

The Federal Reserve stimulus, albeit modest, sends a positive signal to investors, business persons and to consumers, boding well for the coming year. Already, housing activity is responding and we bel+believe there is the potential for a brisk autumn furniture selling season, especially if the inventory overhang has been trimmed. Just as we had a steady recovery in 1986-87 after the challenges of 1985, we expect an improved 1996-97 after the challenges of 1995.

W&WP: What impact do you feel NAFTA has had on the residential furniture industry?

LOGAN: We feel that NAFTA has had a beneficial effect in leveling the playing field for the United States, Canada and Mexico. Exports from the U.S. manufacturers to Mexico increased 37 percent during 1994. Canadian exports remained relatively even with 1993 levels. Over time, however, we do expect to see even greater growth into these two countries as U.S. manufacturers become more focused on their export efforts and continue to strengthen trading partnerships with Canadian and Mexican retailers.

EPPERSON: Regarding NAFTA, we believe that higher paying industries are more subject to real impact than the furniture industry, especially those products that are more easily transported. NAFTA, like the Pacific Rim imports, is making U.S. manufacturers more global in their concepts, driving them toward optimal efficiencies and encouraging them to exploit their own competitive advantages.