The Pandemic’s Effect on the Industry Outlook

By Kevin Cole, Editor

In the Q1 issue, we looked at the previous years’ trends in various segments of the economy and reviewed numerous expert forecasts. The idea was to paint a picture of what 2020 (and beyond) would look like for the countertop/ surfacing industry. Indicators showed the year would continue to grow, albeit a bit slower than the previous years, barring catastrophic events. However, the COVID-19 pandemic certainly qualifies as such, and has affected the economy and may do so into 2021. However, most experts believe the developing recession will be V- or U-shaped instead of long-term.

General Economy

According to the federal Bureau of Economic Analysis, GDP dropped from 2.1 percent in 2019 to a negative 4.8 percent in Q1 of 2020, and that was on the back of two successful months of growth in January and February. A forecast released May 22 by financial adviser Kiplinger (www.kiplinger.com) states, “Business

reopenings have started, but expect second quarter GDP to still drop by 30 to 40 percent

at an annualized rate. Even with a pretty good rebound in the second half of the year, expect 2020 GDP to decline 5.7 percent. Full recovery is likely to take until the end of 2021.”

With numerous businesses temporarily closed in an effort to constrain the spread of the virus, unemployment rose from near record lows to 14.7 percent in April, according to the Bureau of Labor Statistics, with more than 20 million layoffs, most of which were classified as temporary. From March to mid-May, there were more than 38.6 million unemployment claims.

Housing

Housing starts fell more than 30 percent in April according to the U.S. Census Bureau, with singlefamily starts decreasing 25.4 percent to the lowest rate since 2015 and multi-family starts falling by 40.5 percent. However, sales of newly-built homes rose 0.6 percent in that same time period. In spite of the April housing start numbers, Dean Mon, chairman of the National Association of Home Builders (NAHB – www.nahb.org), said, “There is an undercurrent of long-term positivity in the housing market that will likely allow for a strong rebound. Our builder confidence index has already shown signs of a turnaround. Housing was showing signs of momentum before the pandemic and is poised to lead the economic recovery as virus mitigation efforts take hold.”

May 19 the NAHB and Wells Fargo Housing Market Index (HMI) forecast, which ranges from 0 to 100 based on NAHB member surveys, showed significant drops drops between March and April from 72 to 30. However, that same forecast showed a preliminary increase of 7 points to 37 in May, a small move, but in the right direction. In February, experts predicted around a 3 percent growth in housing starts for 2020, but Kiplinger’s forecast now has housing starts pegged at negative 2 percent for the year.

Nonresidential Construction

The American Institute of Architects (AIA – www. aia.org) Consensus Construction forecast, which takes into account the opinions of eight leading industry forecasters, had previously predicted a gain in nonresidential construction of 1.5 percent for 2020. When the same eight were re-surveyed in April, they predicted non-residential construction would drop 11 percent this year. Six of the eight forecasters predicted retail and hotel construction would be hardest hit, while five predicted the healthcare sector would perform best. There was no consensus in any other category, although two of the eight predicted education would do better than the rest, largely because schools were closed and projects could begin early.

Remodeling/Home Improvement

Home improvement/remodeling may also be problematic in 2020 and into 2021 according to the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University (www.jchs.harvard.edu). “After almost a decade of sustained growth in spending for home improvement projects, remodeling activity is likely to decline during the pandemic-induced economic downturn,” stated Senior Research Fellow Kermit Baker. “In the Farnsworth Group’s first quarter 2020 Contractor Index Survey conducted in late March, many remodeling contractors already had experienced delayed or cancelled projects. On average, contractors projected a 10 percent decline in revenue over the coming 12 months.” Cabinetry, countertops, and the kitchen & bath industry are inextricably tied together. While there’s little specific research on cabinetry or countertops released after March, in mid-May the National Kitchen & Bath Association (NKBA – www.nkba. org) released the Q1 2020 NKBA/John Burns Kitchen & Bath Market Index (KBMI), a surveybased gauge of kitchen & bath industry conditions.

The KBMI’s executive summary indicates the industry started contracting in response to the COVID-19 pandemic, stating, “Our survey shows clear signsof slowing demand and declining optimism as current and future business conditions both rate below theprior four quarters.”

The KBMI also shows:

■ The kitchen & bath industry contracting in Q1 2020, as the KBMI rated a 41.0 on a scale of 0 to 100, with 50 being flat sales growth. That’s more than a 40 percent drop over Q4 2019’s rating of 69.8. ■ A pessimistic futur e outlook with an expected 13.7 percent full-year sales decline in 2020, down from 10.8 percent expected growth by NKBA members in Q4 2019. ■ Concerns over remodeling demand and fear the pandemic will deter consumers from undertaking major new projects. ■ Members expect COVID-19 r elated shutdowns/ social distancing measures to reduce Q2 2020 sales by more than 50 percent among builders, dealers and consumer-facing segments of the market, while manufacturing firms expect a 40 percent sales drop.

■ Mor e than half of design firms temporarily closed their offices and 75 percent report lower demand for bids/proposals. ■ Construction companies report widespread project delays and cancellations, but are more optimistic than designers about resuming activity. ■ Retail sales companies cited showroom closures causing major declines to their 2020 sales revenues and saw declines in remodeling expenditures caused by pandemic-related uncertainty and fear.

■ Many reported supply chain disruptions, particularly for cabinetry sourced from manufacturers that had COVID-related shutdowns. Overall, 2020 is going to be a tricky one with uncertainty that could spill over into 2021. However, it doesn’t appear to have near the longevity of the Great Recession in the late 2000s.