Mixed Economic Signals and Carpet Investment

By Kemp Harr

 

As we enter the third quarter, we continue to see mixed signals as to how surefooted this economic recovery is. The recent action by the Federal Reserve to delay the tapering of bond purchases would seem to indicate that it thinks the U.S. economy still needs help and is not stable enough to expand without the help of its $85 billion-a-month stimulus.

Granted, the recent uptick in interest rates has appeared to cool the housing market a bit, but there are plenty of positive signs that would indicate our recovery has a relatively solid footing. Car sales in August were up 17% versus last year and are now at pre-recession levels. August jobless claims were at a six-year low, and the unemployment rate is continuing to move in the right direction. 

The architecture billings index for August shows improvement and indicates that companies are making plans to invest in commercial construction and renovation projects. In addition, the Conference Board’s Leading Economic Index increased in July and August after taking a pause in June. 

The floorcovering industry appears to be betting on continued economic expansion. In May, we saw Bob Shaw’s Engineered Floors announce that it planned to invest $450 million over the next five years. And in the last quarter, we’ve seen several other big investment announcements. Shaw Industries, which just opened its $45 million modular carpet plant in China, has recently announced additional investments of $85 million on a new carpet tile plant in Adairsville, Georgia and $40 million at its hardwood plant in South Pittsburg, Tennessee—plus an additional $100 million on new extrusion and distribution projects. Mohawk, which just last year purchased Pergo and Marazzi, has also recently committed $180 million to its Continuum Process PET carpet fiber project; Armstrong announced plans to build a $40 million LVT plant here in the U.S.; and we’re seeing major investments from the two independent carpet backing producers, with Mattex building a $60 million domestic backing plant in Georgia’s Murray County and Propex expanding its Isis capacity at its facility in Hazelhurst, Georgia. When you add this all up, the floorcovering industry is certainly doing its part to stimulate the economy.

TARGETED CARPET INVESTMENT
Carpet tile, LVT and polyester carpet seem to be the three growth areas that are attracting the most money. Of those three, the carpet tile investment is probably the least speculative and the one area where growth would seem to be in step with demand. In the other two areas, however, there’s a strong chance that capacity could quickly outpace demand, which would result in some interesting share shift dynamics. 

While Engineered Floors breaks ground on its third manufacturing plant, Mohawk is investing heavily on its PET infrastructure and Shaw is expanding its extrusion capacity. Up to this point, the market has responded favorably to these investments and consumption has shifted in the same direction as the investments. As more polyester carpet capacity has come online, polyester’s share of the residential carpet market has grown. The risk, however, is that there’s a saturation point for this type of carpet, and capacity could soon outpace demand. When Shaw Industries recently announced its latest $100 million expansion news, I was told that the new equipment could be used to produce either polyester or nylon. This isn’t the case with Mohawk’s recent expansion. Since it’s centered on converting PET bottles into carpet fiber, it would appear that this investment is totally committed to PET carpet. One wild card is whether Engineered Floors’ next level of expansion will continue to be focused on polyester carpet. One could easily assume that the company would continue to invest in the area that has brought it success, but that may not be the case.

Another dynamic in this polyester versus nylon residential carpet equation is the strength of Invista’s Stainmaster branded nylon 6,6 program. Last year, we took notice at the fall National Floorcovering Alliance meeting that this powerful group of retailers (many of which are Stainmaster Flooring Centers) seemed to be questioning its loyalty and commitment to the program. One short year later, however, it does appear that Stainmaster has rejuvenated itself among these core supporters and is as strong as ever. In fact, Invista tells us that 57 of the new carpet styles introduced at this meeting featured Stainmaster fiber. It would appear that Invista has been working hard to regain this support. Not only has it updated its Ultra-life warranty but it has also won accolades from the Women’s Choice Award, which indicates that the Stainmaster brand is four times more popular among women than the next closest carpet brand. The other three brands that won votes were Mohawk, Shaw and Martha Stewart. 

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

Copyright 2013 Floor Focus



Other Archived Articles

UFloor Systems Signs Western Distributor Big D   Full Article
Aurora, CO, Oct. 14, 2014 -- UFloor Systems has signed Big D Floor Covering Supplies to distribute its Uzin subfloor preparation products.

Mannington Raising VCT Prices in January   Full Article
Salem, NJ, Oct. 14, 2014 — Mannington Mills said it will raise prices by 4% on all of its vinyl composition tile products effective Jan. 5.

Armstrong Issues Third Quarter Warning   Full Article
New York, NY, Oct. 14, 2014 -- Armstrong World Industries became the second public flooring company to issue a third quarter profit warning.

WFCA Names New Leader of Northwest Association   Full Article
Anaheim, CA, Oct. 13, 2014 -- The World Floor Covering Association has named Tish Gasparich leader of the WFCA’s Affiliate Flooring Association Northwest(FAN).

Horizon Forest Products Moves Richmond Offices   Full Article
Richmond, VA, Oct. 13, 2014 -- Horizon Forest Products moved its Richmond offices to 4820 Eubank Road in the Interport Business Center.

Share of Custom Homes on the Decline   Full Article
Washington, DC, Oct. 13, 2014 -- New NAHB research reveals significant regional differences in the share of custom homes started in 2013.

Self's To Distribute Novalis LVT in Midwest   Full Article
Toronto, Canada, Oct. 13, 2014 -- Wichita, Kansas-based Self’s, Inc. will now distribute luxury vinyl flooring made by Novalis Innovative Flooring.

Carpetland To Hold Annual Meeting in Chattanooga   Full Article
Chattanooga, TN, Oct. 13, 2014 -- Carpetland USA ColorTile will hold its 2014 Buying Committee meeting in Chattanooga Nov. 16-18.

Oil Prices Continue Downward Slide   Full Article
New York, NY, Oct. 10, 2014 -- Oil prices extended their free fall Friday.

Economists See Stronger 2015 Economy   Full Article
New York, NY, Oct. 10, 2014 -- Stronger job growth, increasing consumer confidence, and falling oil prices should aid the economic expansion next year, the Wall Street Journal reported.

Tarkett Holding Year-End Sales Promotion   Full Article
Chagrin Falls, OH, Oct. 10, 2014 -- Tarkett said it is holding its biggest sales promotion ever through the end of the year.

Karndean Promotes Hanno to Sales Director   Full Article
Export, PA, Oct. 10, 2014 -- Karndean Designflooring has promoted Tim Hanno to director of retail sales, effective immediately.

Tight Lending Standards Still Hurting Home Builders   Full Article
Washington, DC, Oct. 9, 2014 -- Tight mortgage lending standards continue to affect sales for single-family builders, according to a survey released by the National Association of Home Builders.

Wholesale Inventories Increase in August   Full Article
Washington, DC, Oct. 9, 2014 -- U.S. wholesale inventories rose 0.7% in August, according to the Commerce Department.

Initial Jobless Claims Hold Steady Last Week   Full Article
Washington, DC, Oct. 9, 2014 -- Initial jobless claims held steady at 287,000 last week, according to the Labor Department.

Quick-Step Starts Promoting Q-Wood Flooring on the Internet   Full Article
Dallas, TX, Oct. 9, 2014 -- Quick-Step developed a new website specifically for its Q-Wood category of flooring.

Mortgage Application Volume Rises Last Week   Full Article
Washington, DC, Oct. 8, 2014 -- Mortgage application volume increased 3.8% last week from the previous week, according to the Mortgage Bankers Association.

Got You Floored on Fast 50 List in Piedmont Region   Full Article
Greensboro, NC, Oct. 8, 2014 -- -Got You Floored, Inc. was named by the Triad Business Journal to the Fast 50 for the Piedmont Triad Region in North Carolina.

Georgia Gov. Deal Visits Mohawk in Calhoun   Full Article
Calhoun, GA, Oct. 7, 2014 -- Earlier this week, Georgia Gov. Nathan Deal toured the Mohawk Flooring Center in Calhoun and spoke to employees about the importance of the flooring industry in the state of Georgia.

Interface Issues Third Quarter Earnings Warning   Full Article
New York, NY, Oct. 8, 2014 -- Shares of Interface fell 16.5% in after-hours trading Tuesday after the company announced lower-than-expected preliminary third-quarter results.