2017: Furniture makers must be hopeful

Ask any Cebu-based economist and they will tell you, in unison, that our local economy is driven by tourism, business process outsourcing (BPO) and export.

If you’re keen enough, you will notice that these are foreign-money driven. Tourism largely depends on foreign tourists’ spending. Obviously, BPOs and exports cater to foreign companies’ need. However, while tourism and BPO industries have sustained us for at least a decade, exports of goods have hindered us, so far.

2017, however, could be entirely different. Yes, it is true that China is slowing down and Russia is still trying to figure a way out of recession. However, Japan is slowly avoiding recession and the USA, the world’s largest economy, is on its way to full recovery. After almost a decade of plummeting, the USA willfurther roll this year. Just last quarter, USA’s economy grew by 2.9 percent. Moreover, joblessness is easing up as their job growth has constantly increase.

World economists may have differed in its forecasts but all of these are pointing to upward trajectories. Moving forward, these economists are looking at growth rates at between 2.5 percent and 3 percent. This development is so encouraging. It is a known fact that the US Gross Domestic Product is 70% consumer spending driven. 

Therefore, should consumers curtail spending, the US economy contracts. In simple terms, if Americans stop buying, the world loses the money of the widely known habitual big spenders. On the contrary, however, the world shall benefit.

The question now is, do they have bigger income that they can spend? The gross income may not matter much but in terms of bottom line, yes, definitely. Where will that increase in bottom line come from? From cheaper oil. First and foremost, statistics shows that 88% of the US workforce travels by car. Therefore, this 88% of the workforce shall enjoy a big cut in their fuel consumption. In fact by at least 50 percent as global prices went down by as much. 

These savings will surely translate to purchases of other durable (like houses, furniture, etc.) goods or consumable (like dried mangoes, bananas, etc.) items. The base is also expected to expand on account of rising employment rate as some previously closed manufacturing plants are to resume operation and the existing ones are to increase production.  A normal reaction when there is increased consumer spending and cheaper fuel prices.

For one, the housing sector in the USA has vastly improved and is projected to have a sizeable increase in “housing starts” and “new home sales” this year. As we track and analyze the rise and fall of “housing starts” as well as “new home sales” in the USA, we must be aware that there are many industries whose fates are tied to residential construction. Apart from the easily identifiable construction materials like lumber, cement, roofing materials, etc., the furniture industry is among those directly affected by its movements. 

Statistically, “housing starts” records building activity at its inception, measures the number of private housing units on which construction is begun each month. It includes all types of accommodations designed as family living quarters, whether single units or apartments.  Apartments, however, are counted separately, so that a 5-door apartment building is tabulated as 5 housing starts.

These statistics are used in the USA as indicators of the state of the economy. These are very important indicators because they show how much money the general public has. If there is a rise, it will simply mean there is more money in the economy. If there is a fall, it means the economy is cash strapped and unemployment must have gone up.

For us, Cebuanos, “housing starts” statistics are very relevant. Rightly so, because there is one industry in Cebu that will be directly benefited by its rise and will be badly hit by its fall, the furniture industry. Thus, any drop in the “housing starts” statistics coupled with an unequivocal dependence in the US market could mean disaster for Cebu’s furniture industry.  Any rise, however, could mean bounty for industry players and their dependents.

Indeed, these are bits of good news. For our furniture manufacturers’ sake, hopefully, they (USA) can sustain it.