Strategic Exchange - March 2011

By Kemp Harr

It was good to see consumer confidence surge in February to the highest level since February 2008. Consumer spending is the engine that drives the economy, and consumers are starting to spend again. You’ve probably already read that Commerce Department figures reported December’s consumer spending numbers were up 0.7%. This could be a good year, with rising incomes, reduced payroll taxes and low inflation.

One of the first beneficiaries of this new positive sentiment has been the automakers. Car sales are expected to rise 18% in February, taking the annual pace up to 12.4 million units.

And there’s also good news for the consumer on the housing front. According to the National Association of Homebuilders, housing today is more affordable than it has been in 20 years. Currently, the biggest obstacle for housing is not desire on the part of the consumer but tight credit conditions.

On the other hand, some consumers could be reluctant to buy because they’ve seen the median price of existing homes drop 27% in the past four-and-a-half years. Some could be wondering if home-price appreciation is a thing of the past. It is interesting to note that home ownership in the U.S. has dropped from a peak of 69.2% in 2004 to 66.5% at the end of 2010. Based on this trend, we’re likely to see a surge in the multi-family sector as consumers choose to rent while they build up their credit rating and watch to see if housing values stabilize.

The good news for this industry, whether the consumer rents or buys, is that an improvement in consumer sentiment will ultimately result in more flooring sales.

Naturally, this could all change if political tensions in the Middle East heat up or if Washington refuses to listen to the voters’ concerns about deficit spending.

Sound Bites from Shaw’s Aligned Conference
Warren Buffet, the billionaire whose investment company, Berkshire Hathaway, owns Shaw Industries, spoke via recorded video at the general session of Shaw’s aligned dealer convention in Florida. He said Berkshire Hathaway owns 70 businesses and he expects that all of the sectors that they serve will improve in 2011 with one exception—and that’s housing. He concurs that it’s wise to hold off on building new homes until household formation catches up with inventory. That formation pace is currently 1.2 million households a year.

He was bullish that the level of unemployment will go down in 2011. He said, “There are 308 million Americans looking for ways to better themselves…there’s nothing like American ingenuity.”

His final comment was about customer service. He told the group, “There will always be a place for someone who takes care of their customer. Live by the golden rule—treat people the way you’d want to be treated.”

I hadn’t heard of author Andy Andrews, and when he came on stage at Shaw’s aligned conference, I couldn’t help but notice that his face was locked in a perpetual smile. At first I thought he’d been out in sun too long and his skin was so tight that it was drawing the curves of his mouth up. But I quickly learned that always smiling is part of what made him successful, and it is something he trained himself to do.

Andrews lost his parents at age 19 and drifted, homeless, for several years. Now he’s an acclaimed author of several best-selling books and a refreshing departure from many of the motivational speakers I’ve heard in the past. Andrew’s knack is one of a storyteller. In an unpretentious manner, he teaches his seven principles of success—he confirms simple things that we already know and reminds us to focus on them. His latest book, “The Traveler’s Gift,” takes the protagonist, who has recently lost his job and is destitute, on a time travel trip to see Harry Truman, Abraham Lincoln, Christopher Columbus and several other famous people. Each encounter provides the character with insight that helps him get his life back on track. His lessons remind readers that, for example, it is important to be selective about whom you spend time with and what you watch on television.

Regarding his transformation from homeless drifter to famous author, Andrews tells his audience that he began reading biographies of successful people and started to “notice” what led to their success. He then modeled those actions in his own life.

Made in the USA
Last week, Mannington Mills released a video on YouTube as part of its “Make Some Noise” campaign that creatively draws attention to what happens to American jobs when products are sourced overseas. You can see this video by going to www.manningtonmakesnoise.com.

According to U.S. government statistics, manufacturing’s share of U.S. gross domestic product (GDP) peaked in 1953 at 28%. By 2009, it had fallen to 11%, though the GDP overall had leapt from $200 billion to $14 trillion. Clearly, the role of manufacturing within this country has changed.

I must say that Mannington’s video is effective in building a strong case for keeping American workers employed in small towns like Salem, New Jersey. And since Americans understand the importance of keeping jobs in America—especially following a recession—the video’s message should be well received.

Duty on Engineered Hardwood
Related to this whole topic of American jobs is the recent controversy on whether the Chinese have been dumping engineered hardwood products here in the U.S. A hearing was granted with the International Trade Commission last fall, and we reported on FloorDaily on December 6 that the ITC had determined “there is a reasonable indication that a U.S. industry is materially injured by reason of imports of multilayered wood flooring from China that are allegedly subsidized and sold in the United States at less than fair value.” Based in this finding, we’ll hear in March what duty, if any, will be applied to these products.

On the other side of the debate is a group of importers, distributors and private labelers who think this action takes away the consumer’s right in a free market economy to choose whether they want buy a lower cost import product.

Unless something changes, a countervailing duty will be applied to these products at the end of March. At this point, no one knows how much this duty will raise the price of engineered hardwood flooring that is imported from China.

This topic was being discussed in several of the exhibits I visited during my trip to Domotex in January. The prevailing opinion among several of the importers was that they would be forced to move their source of supply to Vietnam or some country other than China. We will keep you informed as this issue continues to unfold.

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

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