Furnishings Shares Edge Higher

New York, March 2, 2007--Stable interest rates and signs that the housing market may be leveling off have helped home and office furnishing stocks rebound from their own slump in recent months.

The Dow Jones index that tracks furnishings with components including Ethan Allen Interiors Inc., Furniture Brands International Inc., and Steelcase Inc. is up 8.30 percent over the past three months, helping it eke out a 2.25 percent gain over the past year.

Stocks have turned higher recently as the Federal Reserve, satisfied with current economic conditions, put its program of interest rate increases on hold. The Fed has left short-term rates unchanged at its last five meetings, including its January 30-31 meeting. Before that, the Fed raised rates 17 straight times since 2004.

Remarks last week from Fed Chairman Ben Bernanke that economic growth and inflation are moderating lifted stocks and sent the Dow Jones industrials to a series of record highs.

Meanwhile, although construction of new homes and apartments suffered a bigger-than-expected decline in January, some Fed policymakers see signs of improvement. Just earlier this week, outgoing Fed Governor Susan Bies said slumping demand for housing may have bottomed.

And as gasoline prices have retreated from their highs of last summer, investors are hoping that consumers will put more of their money into furnishings.

Morningstar analyst John Gabriel noted that the companies in the furnishings sector are unlikely to trade in lockstep on what the Fed is doing with rates or on the state of the housing market because some are office furniture manufacturers, which are levered toward corporate spending and not necessarily the residential housing market.

Still, Gabriel said any positive economic news may nudge stocks higher.

"If investors are looking for a bottom in the homebuilders, any ray of hope from the Fed could trigger buying," Gabriel said.

Going forward, Gabriel said furniture companies may offer promotional "no interest" periods to boost sales if they feel interest rates are stable.

Stifel Nicolaus analyst John Baugh said the office furnishings sector is booming.

"Declining office vacancy rates, improving white collar employment levels, rising wages -- all these things are good for the sector," Baugh said.

Baugh said one company that continues to gain is Interface Inc., which manufactures nonresidential carpet tile. On Wednesday, the company said its fourth-quarter profit more than doubled as sales jumped 20 percent.

On the residential side, Baugh said stocks did get a boost from Bernanke's economic assessment.

"The Street is picking up on Bernanke's comments that housing has stabilized," Baugh said.

Baugh, however, expects the housing market to stay sluggish for awhile and believes it's too early to say the sector is making a comeback.