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NOVEMBER 1960 Capital Spending Turns Down Furniture: Durable but Different FEDERAL RESERVE BANK OF PHILADELPHIA CAPITAL SPENDING TURNS DOWN Manufacturers in the Philadelphia area anticipate sub stantially lower capital expenditures in 1961 , after setting a record in 1 9 6 0 . Manufacturers in the Philadelphia Metropolitan million, a projected drop of 20 per cent. In the Area will spend an estimated $412 million on history of our survey, such hesitancy is not plant and equipment in 1960. This is about what unusual, but it is by no means universal. Last they reported last March, and is 8 per cent year, for example, participants in the survey greater than the year-ahead projections they confidently predicted that capital expenditures made in September 1959. It surpasses the previ in 1960 would substantially exceed 1959 totals, ous highest estimate recorded in our survey of and, as it turned out, they were right. This year manufacturers’ capital expenditures— $391 mil that note of assuredness is absent. lion in 1957. Manufacturers of both durable and nondur The plant and equipment modernization which able goods plan to spend less in 1961. Most these figures reflect means that manufacturers industries follow the same pattern; increases here are backing with large capital outlays their are few and scattered. The petroleum industry, determination to compete for future business. which in the spring cut back its plans of last This in a sense is a vote of confidence in the fall, has again cut back; however, this industry prospects of their companies. But when we asked plans to spend as much in 1961 as in 1960. about capital spending in 1961, a note of hesi Printing and publishing, substantial activities tancy became evident. The capital expenditures in this area, plan to increase capital expenditures planned for next year add up to only $330 20 per cent next year. Primary metals producers 2 business review CAPITAL EXPENDITURES OF MANUFACTURERS, AREAS IN THE SURVEY 1952-1961 Philadelphia Area. MILLIONS OF DOLLARS equipment in 1961 than in 1960. As in Phila delphia, most industries anticipate decreases, and no really sizable increases are expected in any category. The su rv e y re v e a ls presen t anticipations; these w ill ch an ge Plans for capital spending are always under review, continually affected by the ever-changing crosscurrents of a particular industry or of CAPITAL EXPENDITURES OF MANUFACTURERS, 1957-1961 Trenton, Wilmington, Lehigh Valley. indicate they will sustain their present rate of plant and equipment expenditures. But these industries constitute a minority. No really large increases show up in the returns. Companies are being conservative about 1961. N e ig h b o r in g a re a s: Trenton, W ilm in g to n , the Lehigh V a lle y Cautious planning is evident elsewhere in the Third Federal Reserve District. In the counties surrounding Trenton and Wilmington, and in the Lehigh Valley, manufacturers expect to spend an average 13 per cent less on plant and 3 business review PHILADELPHIA MANUFACTURERS’ EXPE PRODUCTION, Employment Projections by Quarters (Index: Third quarter• = 100) 19 6 1 1 9 6 0 Second First Fourth Third 99.1 98.8 Durables Lumber & furniture 100.0 100.0 100.0 98.2 100.9 97.5 103.8 Stone, clay & glass 100.0 98.5 Primary metals 100.0 103.1 98.2 103.9 Fabricated metals M achinery (excl. elec.) 100.0 100.0 99.0 98.9 All manufacturing Electrical machinery Transportation equipment 100.0 101.1 86.4 Instruments & miscellaneous 100.0 98.5 100.0 Nondurables 100.0 99.5 98.4 106.8 99.8 100.0 104.0 102.4 99.0 102.2 103.3 99.2 76.0 77.1 99.9 100.1 99.5 100.2 100.8 1 1 1.6 99.1 Food & tobacco Textiles 100.0 100.0 99.5 100.2 98.3 107.7 A p parel Paper 100.0 101.4 101.4 100.5 100.0 99.5 100.2 Printing & publishing 100.0 101.2 99.0 99.4 100.8 98.5 Chem icals 100.0 100.3 100.4 Petroleum & coal 100.0 100.0 99.0 99.6 99.0 99.4 99.3 100.6 Rubber & leather the general economy. The figures reported here decline turned out finally to be a decrease of represent expectations for 1961. As it so often 20 per cent. goes with expectations, they may not be realized. Our survey of manufacturers’ capital spend It is quite possible that 1961 could bring with ing in its present scope covering the eight- it total capital expenditures commensurate with county Philadelphia area began in 1952. An those of 1960. This happened in 1956, when an ideal set of anticipatory figures would always anticipated 6 per cent drop turned into a 10 per predict correctly. The survey’s figures have not cent increase, and in 1955, when a projected achieved this, which is not surprising. Business 20 per cent drop was cut to 5 per cent by the men change their minds as economic events un time final totals for the year were in. On the fold. Consequently, next year we expect to find other hand, in 1958 a planned 14 per cent that actual expenditures will differ from those 4 business review CTATIONS CONCERNING EMPLOYMENT, AND INVENTORIES Production as Inventory Expectations, 1961 Per Cent of C apacity by Quarters I 9 6 0 Third Fourth Per C ent of Total Firms Expecting: 19 6 1 First ncrease Second N o Change Decrease 78.0 78.9 79.5 80.4 1 1.6 72.3 16.1 72.9 74.4 75.3 20.7 87.5 82.4 88.9 1 1.8 16.7 67.5 88.7 76.6 91.4 84.4 10.0 17.4 83.3 65.0 25.0 52.2 30.4 7.7 69.2 23.1 12.9 66.5 79.9 75.9 64.7 67.6 79.0 71.6 78.3 9.3 77.8 20.0 41.5 85.1 41.6 50.0 OJ 61.1 77.8 78.4 OO 82.4 50.0 80.7 81.6 13.0 73.9 84.1 84.6 1 1.5 76.2 87.6 75.8 85.7 78.1 91.3 9.1 10.8 78.8 73.8 79.7 81.0 86.4 82.7 88.3 83.9 84.2 16.0 15.4 22.7 78.4 80.1 10.7 77.3 77.8 82.4 83.7 84.3 47.1 42.8 77.6 83.8 82.0 83.7 87.7 68.7 87.4 70.9 92.5 80.4 90.7 92.1 94.4 82.3 89.0 78.7 81.6 85.9 78.9 86.6 77.3 86.3 79.1 5.1 30.0 41.7 13.1 12.3 12.1 15.4 15.2 84.0 69.2 15.4 77.3 83.3 71.4 16.7 17.9 planned now. In such a situation, it is instruc 1962 tive to study the biases in one’s data — the The firms in Philadelphia providing informa changes which seem to deviate persistently from tion concerning capital expenditures the purely random. Our survey has tended to seem to have suffered a fundamental impairment do not be on the pessimistic side; only twice in eight of confidence. Although most of them expect to years has the gain realized been less than the cut back spending substantially in 1961, opin predicted gain, or the realized loss greater than ions about 1962 lean a little toward optimism. that predicted. There is, therefore, at least as Two-thirds of those responding said spending good a chance that next year’s capital expendi in 1962 will equal 1961— not an unusual survey tures will turn out higher than now anticipated result in a year of uncertainty— but a clear as that they will be lower. majority of the remaining one-third feel that 5 business review ANTICIPATED CHANGE IN CAPITAL EXPENDITURES ESTIMATED CAPITAL EXPENDITURES OF MANUFACTURERS 1961-1962—Philadelphia Area 1960-1961—Delaware and Lehigh Valleys Per C e n t of ( M i l li o n s $ ) 1 9 6 0 -6 1 I9 6 0 1961 41 1.9 191.1 2 .7 3 3 0 .3 170.3 1.7 6.9 — - 19.8 10.9 — — 3 7 .0 14.8 84.1 16.7 + — 3 .4 15.7 17.8 2 8 .0 7.9 7.2 1 6 0 .0 2 1 .9 4 .6 2.2 14.4 18.7 4 6 .9 3 8 .6 12.7 — 2 9 .9 25.1 P h ila d e lp h ia M e t r o p o li t a n A r e a A ll m a n u fa c tu rin g D u r a b le s L u m b e r & f u r n it u r e S to n e , c la y & g la ss P r im a r y m e t a ls F a b r ic a t e d m e t a ls M a c h i n e r y (e x c l. e le c .) E le c t r ic a l m a c h in e r y T r a n s p o r t a t io n e q u ip m e n t In s t r u m e n t s & m is c e l la n e o u s N o n d u r a b le s Food & to b a c c o T e x t ile s A p p a re l Paper P r in t in g & p u b l is h in g 8.1 8 1 .3 19.8 2 5 .4 3 7 .4 10.4 6.0 2 2 0 .8 3 6 .4 10.6 3.2 2 5 .8 15.4 7 6 .2 3 6 .7 16.5 F irm s E x p e c t in g : In No Dec r e a s e C h a n g e c r e a se Per C e n t Change E x p e n d itu r e s — 2 4 .0 + 2 0 .0 — 2 7 .5 — 3 9 .8 — 5 6 .6 - 3 1 .3 — 4 4 .2 + 2 1 .4 A ll m a n u fa c tu rin g D u r a b le s 19.8 2 5 .6 6 6 .5 5 9 .4 13.7 15.0 L u m b e r & f u r n it u r e S t o n e , c l a y & g la s s P r im a r y m e t a ls 2 6 .7 6 0 .0 13.3 3 0 .0 21.1 5 5 .0 63.1 F a b r ic a t e d m e t a ls M a c h i n e r y (e x c l. e le c .) 2 0 .5 2 3 .2 3 5 .0 6 1 .6 66.1 4 0 .0 15.0 15.8 17.9 10.7 2 5 .0 4 1 .7 23.1 15.0 2 7 .8 9.1 3 3 .3 6 9 .2 7 2 .4 6 6 .6 7 7 .3 9 0 .0 5 4 .2 6 5 .6 6 5 .2 57.1 7 5 .0 E le c t r ic a l m a c h in e r y T r a n s p o r t a t io n e q u i p m e n t In s t r u m e n t s & m is c e l la n e o u s N o n d u r a b le s Food & tobacco T e x t ile s A p p a re l Paper P r in t in g & p u b l is h in g C h e m ic a ls P e t r o le u m & c o a l R u b b e r & le a t h e r 7.5 2 5 .0 17.2 8 .7 — 2 5 .0 7.7 12.6 5 .6 13.6 2 .5 2 0 .8 17.2 26.1 4 2 .9 — + 3 8 .5 5.2 — 2 3 .0 2 0 .5 — 2 5 .7 8.1 12.4 -3 1 .9 15.7 — 2 1 .0 5 1 .7 4 6 .8 — 9.5 49.1 4 0 .3 8.8 4 4 .4 3 5 .8 8 .6 — — — 9 .6 1 1.2 2.3 ware and Lehigh Valley regions now plan to their spending in 1962 will surpass 1961. Only ing new highs in 1960. Plans for capital ex two important industries— chemicals C h e m ic a ls P e t r o le u m & c o a l R u b b e r & le a t h e r 2 7 .6 1 1.9 D u r a b le s N o n d u r a b le s W i lm i n g t o n A ll m a n u fa c tu rin g D u r a b le s N o n d u r a b le s 3 .6 result from increased efficiency, however, for T re n to n A ll m a n u fa c tu rin g L e h ig h V a lle y A ll m a n u fa c tu rin g 2 1 .4 employment is expected at best to hold its own, and in durable goods plants to decline. Su m m ariz in g We have seen that manufacturers of the Dela decrease capital spending in 1961, after reach and pe penditures can change; in the history of our troleum— expressed the contrary opinion, with survey changes have been more often upward one-third of the firms anticipating further spend than down, so the data presented here by no ing decreases in 1962. means guarantee depressed capital spending in In ventories, e m p lo y m e n t, however, the survey totals remain, and they are a n d production not encouraging. They presage a drop from a Manufacturers in the Philadelphia area intend record total of $412 million in Philadelphia in 1961. Having noted this very real possibility, no inventory buildup in 1961, but they do 1960 to $330 million in 1961. Decreases also anticipate increasing production are anticipated in the Trenton, Wilmington, and rates some what. The production increases will have to 6 Lehigh Valley areas. FURNITURE: DURABLE BUT DIFFERENT Man started using furniture soon after he to slight furniture. When they speak of con climbed down from the trees. A log to sit on, sumer a flat-rock table, a bed of straw or skins— these “ durables” ) they discuss automobiles and ap durable goods (usually shortened to early caveman pieces developed into one of pliances but seldom furniture, the most durable civilization’s most essential and familiar prod of them all. This omission is in spite of the ucts. Imagine what eating, sleeping, and work almost $5 billion that is being spent for furni ing would be like without furniture! ture each year. Yet for all its necessity and everyday famili Perhaps the widespread lack of understanding arity, furniture is far from understood. Men is due to the many changes that have taken who use furniture seldom notice it unless it is place in the furniture industry or maybe it is too lumpy; women who buy it are often con due to the unusual nature of the product and fused by style and mystified by construction. the demand for it. And if consumers don’t understand the product, This article focuses on the demand for furni neither does the industry seem to understand ture— why people buy it and why they don’t. its consumers— or so it is often alleged. First, we shall see that spending for furniture Economists and GNPanists have a tendency has been behaving in some surprising ways. 7 business review A STEADY SHARE OF THE CONSUMER’S DOLLAR Expenditures on furniture as a percentage of dis posable personal income. demand for durable goods is supposed to swing way up in good times and way down in recessions for durables last a long time and their purchase is usually postponable. When the economy slack PER CENT ens, many consumers make do with what they have, the theory goes, and sharply curtail their buying of new durables. When the economy moves upward incomes and optimism increase. The future looks bright and many people decide to buy that durable they have been putting off. At this stage of the busi ness cycle, consumers often are quite willing to borrow in order to buy. Propelled by optimism and credit, the sale of durables is supposed to THE R E M A R K A B LE 1.5 PER CENT rise considerably faster than income. The furniture industry’s number one target seems The theory works for automobiles and ap to be a bigger share of the consumer’s dollar. pliances. Their sales charts look like cyclical This goal is mentioned frequently in the industrial STABILITY IN A FLUCTUATING FAMILY self-analyses that appear in the trade publica Expenditures on durable goods. tions. It is, of course, a natural objective for it RATIO SCALE BILLIONS OF DOLLARS can mean millions of dollars in extra sales. In the competition for the consumer’s dollar furniture has been firmly holding its own.1 Furniture expenditures as a percentage of dis posable personal income have been virtually stable since 1946. The figure has been running just below 1.5 per cent. We should emphasize that furniture spending in dollar terms has doubled since 1946. The stability of which we speak is in relation to disposable income which has also doubled in the same period. Like a rolle r coaste r This constant relationship to income is hard to understand. According to economic theory, one would expect furniture spending to fluctuate widely over the business cycle— both in actual volume and as a percentage of income. The 1 W e are d e a lin g with hom e furniture in this article, in c lu d in g m attresses and b e d sp rin g s but e x c lu d in g floor cove rin gs. 8 , ___ 1 ___ I____I_ J ____L .......1 ....J _____ 1 _ ... ______ I_____ L _____I..........i.... - J ____1____ 1946 *8 '50 '52 '54 '56 '58 '60 business review roller coasters. But it does not work nearly so average a shade under 1.5 per cent of it. This, of well for furniture. The swings in furniture spend course, does not mean that all families spend ing are small no matter how they are measured. 1.5 per cent of their income on furniture. The It is puzzling for the unstabilizing elements of percentage varies with the amount of income postponability, credit, and style are ever pres received. It runs high in the middle-income ent in furniture. ranges and drops in the over-$7,500-a-year and There are several possible explanations. In under-$4,000-a-year categories. the first place, although furniture is exceedingly The importance of income as a demand factor durable, not all purchases are, in fact, post- shows up on a monthly as well as a yearly basis. ponable. Just-married couples and individuals We constructed a monthly'series of furniture moving out from a family group must of neces sales and adjusted it for seasonal variations.1 sity buy some furniture. Up to 20 per cent of Plotted together, our series moves closely with all furniture sales, it is estimated, is made to monthly personal income. these first-time housekeepers. Second, there are many ways to scale down Is furniture try in g to furniture purchases. If the time doesn’t seem tell us so m e th in g right for a sofa, one might still manage an easy We discovered something else about our furni chair; if not, maybe a bureau or maybe just an ture series— something we can’t explain. It seems end table. There is a piece for every pocket- to have powers to predict the future. In the book. The point is that although purchases may recession of 1953, sales of furniture turned down sharply six months before the peak quarter of be reduced, ^people will probably continue to buy some furniture. Automobiles and major appliances, on the other hand, are more of a Gross National Product (see chart). In the 1957 recession, furniture began to drop three months you-buy-it-or-you-don’t proposition. Third, furniture retailers reputedly hold bigger sales and extend them longer than do other durable dealers. This policy gives an extra spark to sales when business is slack. Finally, furniture lacks some of the glamour and work-saving convenience that stimulate the CALLING THE TURNS The furniture sales series is a seasonally adjusted combination of the sales of furniture stores and the furniture departments of department stores. Gross National Product is shown as a seasonally adjusted annual rate. GROSS NATIONAL PRODUCT BILLIONS OF DOLLARS FURNITURE SALES MILLIONS OF DOLLARS demand for other durables (or did throughout much of the postwar period). Thus when busi ness conditions improve, furniture gets a rela tively low purchase priority and such spending doesn’t bounce so high as outlays for automo biles. It is evident that disposable personal income is one of the principal determinants of furni ture demand in good years and bad. Whatever income is, furniture spending is likely to 1 The series was built from furniture store sales a n d f ig u r e s for the furniture d e p artm e nts of de p artm e n t stores. There is a w h o p p in g seasonal in furniture sales— dow n in Ja n u a ry and February, then up through the year to a spire in Decem ber. 9 business review before the peak quarter. In both 1954 and 1958, with some recognized period or influence— to the furniture turned up at just about recession mass market. The initial consumer reaction to style was trough. Our series sniffed two recessions coming and encouraging and furniture men may have felt signalled when they were over. It’s too bad that they were on to something big. They long have comparable figures are not available prior to envied the automobile industry and its knack of 1952 for it would be interesting to test their making the still-good unwanted through style performance in earlier recessions. As this article is written many analysts ex changes. So the manufacturers styled more and more of their furniture and changed styles more press considerable doubt about our position in the business cycle. Is the economy in a recession frequently. There are many who believe that style is a or isn’t it? It may be significant that furniture good thing for furniture. They say it sells a sales have been trending down since last March. lot of pieces. But a number of critics close to the industry feel that style has gotten out of THE C O N F U S IN G STATUS O F STYLE Style is a big new feature in the mass furniture hand. There are too'many styles, they say, and market. Arty sorts and people with the money The result is confusion. The shoppers’ heads are changes come too fast for consumers to absorb. to hire professional decorators have purchased churning with new words they don’t understand stylized furniture for a long time. Not so the — Mediterranean, average consumer. Until after World War II finish, Regency, Danish modern. Confused shop she usually settled for “ borax,” pers can lose confidence in their own tastes as unstyled fruitwood, dislike buying oil furniture is called. Borax is bulky, high-gloss, and amorphous stuff but the typical prewar consumer The result, critics claim, is that many sales are seemed to like it— or at least knew nothing lost. better. subconsciously Directoire, furniture. Style has backfired! says one side. No, it After the war, however, the general level of public taste began to improve and has continued to do so to the present day. As one writer puts it, there has been a “ landslide for good taste.” hasn’t, claims the other, style is working well. And the controversy goes on. It seems to us that the policy of creating de mand with style changes, or dynamic obsoles There are many reasons for this landslide. cence as it is often called, has not been nearly so Among them are widespread travel, growing successful with furniture as it has been with incomes, better education, improvements in mass automobiles. And there is reason to suspect that communications, and the greatly increased in it never can be as successful. fluence of the “ shelter” magazines. These publi Without getting into the current argument cations expose legions of homemakers to the about dynamic obsolescence— is it good, bad, essentials of tasteful decoration and whet their wasteful, here to stay, dying out, etc.— let’s appetites for style. see what has made it work for automobiles. The furniture industry quickly sensed the Automobile styles change once a year. The general improvement in tastes. It responded by change is enough to identify each model with introducing stylized furniture— pieces identified a given year yet there is a certain continuity 10 business review from one year to the next. A basic style usually line. The idea is to give the customer a simple, is carried through each make in the company’s easily recognized style on which to concentrate and then to pound it home with heavy advertis ing. Other essentials are. trade-ins and a highly developed used-car market in which to dispose SITTIN G PRETTY of the dynamically obsolete. W e b ste r defines style as "a distinctive or Furniture is entirely different. There is no characteristic m ode of presentation, construction, organized used-furniture market and most dealers or execution." Furniture styles can be divided into will not accept trade-ins. Furniture is not heavily two basic groups: contem porary and traditional. advertised and there are few national brands. C onte m porary or modern was introduced in the Finally, furniture styles are changed so often— 1920 s and reached its peak in the mid-1950's. It three and four times a year by some manu features clean-lined functionality. Oriental styles facturers— and exist in such profusion that they usually are put in the contem porary category. Scandinavia, many feel, is leading the way in do not identify a piece as being made in a certain year. good, simplified, contem porary design. Imported Quite possibly this proliferation of styles was furniture, especially from Denmark, is important unavoidable, the furniture industry being set in this country for its influence rather than for its up the way that it is. quantity. Inspired by these imports Am erican designers have developed a style called Danish R az o r-k e e n com petition modern. The furniture industry has been called a Traditional styles, grow ing more popular all the “ stronghold of small business.” This is an apt time, draw from the past. The standbys are Early description, for there are over 3,000 manu Am erican and French and Italian Provincial. But facturers and more than 30,000 retailers with no this is only the beginning. Traditional styles break one or small group of firms in a dominant down into dozens of sub-categories. Som e follow position. the lead of past designers such as Chippendale, Manufacturers, for the most part, bypass Sheraton, Duncan Phyfe, and Hepplewhite. O thers wholesalers and sell directly to retailers. The are inspired by historical periods, am ong them furniture “ market” is an important merchandis Regency, Gothic, Louis XV, Directoire, Empire, ing institution. Markets are periodic expositions Federal, Victorian, G eorgian, and Queen Anne. where manufacturers display their latest lines The A m erican Shaker influence is also important. for the retailers to inspect and purchase. One "M e d ite rra n e a n " refers to furniture of French, of the most important markets is held twice a Italian or Spanish derivation. year in Chicago and another at High Point, Recently there has been a tendency to combine North Carolina. Others take place at varying various styles. "Y o u take a leg from some old intervals in Dallas, New York City, Los Angeles, table, an arm from some old chair . . . ," as the and other regional centers. old college song goes and the result is a brandnew style. With a large number of manufacturers trying to sell to an even larger number of retailers, competition is razor keen. The manufacturers 11 business review seem to feel that style is an especially appropri vastly different on a chaise, a Chevy, and a ate competitive weapon. Style changes do not chemise. take large amounts of capital. Any firm, no matter how small, can get into the act. The main A n ou tpost o f e le gan ce requirement Many manufac There are really three furniture markets— the turers, therefore, try to have a new style to show class market, the huge middle market, and the at each important market. remnants of the borax market. Styles are rela is imagination. Another incentive for offering multiple styles tively stable in the class market. Changes are is the retailer’s fondness for exclusive rights to made infrequently and most styles stay on dis sell a certain style in his area. The more style lines a manufacturer has, the more “ exclusives” play for years. Contemporary styles are im portant in the class market and traditional he can grant in a given locality. styles are usually pure rather than combinations. The multitude of styles and the frequent The low-priced, borax market which deals in changes seem to have their bases in the small- a product called “ foinicher” is shrinking as its scale, competitive nature of the industry and customers move up but it is not yet dead. Here the market institution. The present profusion of styles may be more a product of manufacturers’ style is virtually nonexistent. efforts to sell to retailers than of retailer^’ efforts EARLY AMERICAN to sell to consumers. There are those who would disagree with this statement. They would say that retailers demand a large number of styles because that’s what the consumer wants. Ladies crave the oppor tunity to express their individuality with furni ture as with clothes. Others would claim, however, that the furniture industry has been generally weak in market research and in buyingmotivation studies and quite possibly doesn’t know what its consumers really want. The acid test is, does style increase demand Style has become much more common in the past five or ten years yet there has been no sustained increase in furniture’s share of the consumer’s dollar during that time. There is no conclusive evidence but the weight of expert opinion seems to be that style is an important factor in the selection of specific furniture— once the decision to buy has been made— but that style increases the total demand for furniture only slightly, if at all. The effect of style is 12 business review The huge middle market accounts for the two-tone pastel colors, fins, chrome, and all bulk of furniture sales and it is where style is sorts of sculptured protuberances. But these are now rampant. Early American is an ever-popular now giving way, we understand, to compact staple. It holds this position partly by default. simplicity. Shoppers, not trusting their tastes and confused Maybe automobiles are a weather vane point by other styles, often select Early American ing to a broad shift in public tastes and furni because it is safe and accepted. Contemporary ture elegance is due for a change. Or it could styles have declined in importance during the be that car-buying men have become more self- past five years but they are still significant. conscious about displaying affluence than their Aside from Early American and Contempor furniture-buying women. Or possibly homes are ary, there is a jumbled hodgepodge of styles in increasing in importance as a status symbol the huge middle market. No one style seems to while autos are decreasing. dominate but there is a currently fashionable influence or effect noticeable in a number of popular styles. In a word, it is elegance. It in volves embellishment and ornamentation, bold flowing lines, inlays, carvings, lush colors, and plush fabrics. The effect is of cozy opulence. It is possible that the shelter magazines started the trend to elegance. They certainly have been playing it up. But it might be that they have D E M A N D PUSHES A N D PULLS So far we have concluded that income has a big effect on the sale of furniture and that style probably does not increase total spending very much. We shall discuss other factors which play a part in the demand for furniture in the remain ing sections of this article. merely been reporting an existing phenomenon. Some experts feel that such basic drifts of furni N e w w a y s to sell ture fashion have deep psychological roots. The old-time furniture store presented an im It is said that elegance in furniture is a re posing panorama to the customer. Merchandise flection of our current affluence. People want was tightly packed over an acre or more of to express their new status and prosperity and floor space. Here a herd of sofas grazed flank they do it with embellishments just as the well- to flank, there a phalanx of dinette sets, in the to-do have done for centuries. In fact, a number corner a copse of lamps— furniture everywhere of the current styles derive from earlier periods with only narrow, knee-bumping aisles between. of opulence: France before the Revolution, the Italian Renaissance, the Georgian period in England. Consumers like a good selection but such chock-a-block variety can be overpowering, even self-defeating. Many stores still display their The cold war enters into the picture, too. wares in the old-time manner but there has been People are supposed to crave cozy, graceful a trend away from it. An increasing number of elegance at home to give them a feeling of stores in the middle market are showing off their security in insecure times. furniture in room-like settings complete with It is curious that while color and ornamenta accessories. This gives the shopper an idea of tion are ascending in furniture, they are waning how the furniture will look in its natural environ in automobiles. In the mid-1950’s, cars ran to ment, her home. 13 business review A new institution has blossomed in the class FRENCH PROVINCIAL market during the postwar period— the show room. Here high-priced, quality furniture is displayed in dignified settings. But you just can’t walk in off the street and buy at a show room. Like the old speakeasy, someone has to send you. It could be an interior decorator, architect, or another dealer. The buyer pays full price and the person who referred her gets a percentage. In a sense, showrooms are whole salers with retail patrons. Showrooms are taking a good share of the high-quality market from the regular retailers. But most of these retailers are happy to turn prices at all except on the few nationally ad the expensive pieces over to specialists. It is slow vertised brands? moving, takes lots of floor space to display to The “ wayside” furniture store innovation. Waysides is another are usually proper advantage, and requires salespeople with marketing special knowledge and ability. high-volume outlets located in a monster Quon- Furniture has a high retail markup— 100 per set hut or some large building on a heavily cent in some cases. The industry usually justi traveled highway. Waysides have grown rapidly fies this by saying that retailers perform many with the exploding suburbs and the week-end wholesale functions and must carry a large, drivers they serve. slow-moving inventory that is subject to the Furniture retailing may be efficient or it may risks of changing styles. What is high can come not. You can find either opinion in the trade down, however, and this markup policy means press. The point we are trying to make is that that good furniture bargains often can be had marketing when stores hold sales. recent years and seem to be moving in the di High markups also attract discount houses. practices have been changing in rection of greater efficiency. This kind of furniture store has multiplied rapidly in recent years. In addition to the local Fam ilies a n d the variety, at least one discount chain has set up p urch asin g pattern a furniture subsidiary and others are consider Most families buy some furniture more or less ing it. continuously— a lamp now, a bookcase next We wonder how the discount stores will operate spring, an occasional table. Yet there are defi and what their ultimate success will be. Lacking nite purchasing peaks and troughs in the aver brand names on which to compare prices, and age family’s career. Let’s look at Jack and lacking knowledge of construction, how can the Betty, a mythical but typical couple. average customer know if she actually is getting They were married in May. Shortly before a bargain? And if she can’t tell, won’t it be the wedding they went shopping to furnish the tempting for the discount house not to cut new apartment. They already had appropriated 14 business review a few tables and chairs from their parents’ attics A TROUGH IN TROTHS so they bought some big stuff— a bed, bureaus, The number of marriages actual and projected to 1970. an easy chair, and a sofa. They lived in the apartment several years MILLIONS while Betty continued to work. During this period they managed to replace some of the “ early mother-in-law” pieces. Then the baby came and the apartment was too crowded— baby things everywhere and that nighttime wailing. They started making Sunday trips to sample houses. The house they bought was quite a bit larger than the apartment and they needed extra furniture. They bought some but not so much as they would have liked be cause of the down payment on the house, the settlement charges, and the expense of moving. ture. Jack and Betty continued to buy furniture in Like Jack and Betty, many couples buy furni dribs and drabs until the children were in their ture in spurts— when they marry, when they early teens. Then they went on a substantial move, when the children become more than tots, buying campaign. The children needed more and when the children leave home. Of them all, “ grown-up” furniture in their rooms and there the marriage peak may well be the most im was the new recreation room to furnish. Besides, portant. some of their first furniture, now 15 years old, was just about shot. The lifetime purchasing pattern has a signifi cant effect on the present demand for furniture. It seemed like no time at all before the chil Marriages are now at reduced levels due to the dren were educated and out on their own. Jack low birth rate in the 1930’s. This also means was at the peak of his earning power and this relatively few children are leaving their parents sudden drop in expenses made him feel rich. to go out on their own. Thus two purchasing peaks may be somewhat depressed. CONTEMPORARY There are more older folks today and more of them are living alone. This is something of a plus factor in the demand for furniture but it is doubtful that retirement incomes permit ex tensive buying of major pieces. The big news in the population mix is the tidal wave of teenagers. When they start marry ing and setting up housekeeping — probably around 1965— they should give a hearty boost to furniture sales. Until then, the effect of the population structure may be neutral. 15 business review The g r e a t p o p u la rity probably reduce sales of the new. The antique o f antiqu es vogue, on the other hand, may have stimulated Sales of antique and semi-antique furniture are interest in furniture generally. Antiques mix soaring. In a market that was once the province well with new furniture and may induce some of rich dowagers and society matrons, it is not extra sales. unusual to find plumbers, machinists, and all sorts of workingmen waiting slightly bored while A b a r g a in a t t o d a y ’s prices their wives dicker over the price of a wobbly cobbler’s bench. The retail price of furniture trended upward from the end of World War II to 1951. During From 1952 to 1957 the number of antique that period, furniture prices moved together with dealers increased by one-half to 12,000. Un the consumer price or cost-of-living index. Since doubtedly there are many more today. Although 1951, however, furniture prices have been stable there is usually a downtown cluster, the typical to declining while the over-all index has continued antique shop is located along the highway in to climb. the exurban fringe. But not all antiques are Several factors have helped hold the price sold from shops. Auctions held by churches or line. Like textiles, the furniture industry has for the liquidation of an estate are also good been moving to the South where cheaper labor sources. is available. Although furniture is still not Status is undoubtedly one reason why antiques are so popular. They have always been associ a mass production industry, in the last decade many firms have introduced cost-cutting, ated with the “ upper crust” and are being used assembly-line techniques. today by the nouveau affluent to express wealth materials such as plastics and new glues also Better and cheaper and taste. Some people buy antiques because have trimmed expenses. they can be good investments. They are limited declining retail markups, in part the result of in supply and, if well chosen, are likely to in discount competition. Important, too, are crease in value while being used. Antiques also help ease the consumer’s taste jitters. They were ONE PRICE THAT H A SN ’T G ONE UP accepted once and are likely to be a safe choice. The consumer price index, 1947-1949 = 100. “ Antiquing” or browse shopping is high ad INDEX venture to the aficionados. One never knows what treasure he will find, maybe something valuable that can be had at a “ steal” price. And one can never tell what a piece will look like when the dirty old paint is peeled off and the wood glows with its mellow patina. In fact, the refinishing and repairing that many antiques and semi-antiques require may be a part of their appeal. Do-it-yourself is a hot trend today and 1 0 /0 0 0 /0 0 0 m o v in g d a y s a y e a r it is said that 11 million homes have workshops. New housing starts are supposed to have a big As a substitute for new furniture, antiques effect on demand for furniture. People buy a 16 business review FOLLOWING THE LEADER? earlier, moved in step with business conditions. Privately owned housing starts are shown as a season ally adjusted annual rate. The series on furniture sales is the same as used in the chart on page 9. Starts, on the other hand, have tended to fluctu HOUSING STARTS THOUSANDS OF UNITS FURNITURE SALES MILLIONS OF DOLLARS ate in a contracyclical fashion— up in recessions, down in booms. The effect of the business cycle is likely more responsible for the two series’ behavior than any cause-and-effect relationships between them. This does not mean that housing has little or no effect on furniture sales. A 1950 study made by the Bureau of Labor Statistics and the Wharton School of the University of Pennsyl vania shows that families who moved into different homes during the year spent 4.3 per cent of their income on furniture. This is 2^j times as much as the figure for all families. If this is true, why didn’t our chart show a con new and probably larger house and right away sistently close they need a lot of new furniture, the reasoning sales and new housing starts? goes. Here are the facts. relationship between furniture New housing starts are only a partial measure of the number of houses sold during the year. Housing starts peaked in 1950, 1955, and 1959. In all three years furniture sales moved Two or more used houses change hands for up, too. But sales also rose in 1951 and 1956— every new one. People buying an existing house years when starts plummeted. These are yearly have an equal need for extra furniture. In fact, figures, however, and may average away some they may actually be able to buy more furniture delicate relationships. because an older house usually comes better To get a closer look, we plotted our monthly equipped. Storm windows often are installed, furniture series against monthly housing starts. lawns are established, plantings and patios are in Starts bounced up in mid-1953 and furniture place, freeing money for furniture. sales turned upward about a year later. Starts We also should consider families that move peaked out in late 1954 but furniture sales con into rented housing. They outnumber all buyers tinued to climb until 1957. Starts picked up three to one. No doubt many of them move to slightly ahead of sales in the spring of 1958. larger quarters and have to buy extra furni The revised series of starts has been slipping ture. In some cases even renting less space can since April 1959 while sales have been jiggling lead to extra furniture purchases. Take the case lower since March 1960. Thus starts led furni of an older couple switching from a house to ture up by about a year, down by about two an apartment. Their existing furniture could years, up by a month, and down by a year. We should point out, however, that furniture be too big and bulky to fit comfortably in the new unit. sales and housing starts have behaved differently It seems to us that moving from one residence in the business cycle. Sales, as we mentioned to another is a basic factor in the demand for 17 business review furniture. New starts alone greatly understate THE BEST SELLER LIST the full impact of housing on furniture sales. Household furniture: The percentage change in value of shipments, 1947 to 1958. With mobility at a high level during the postwar years, there is little question that housing (or METAL moving) has had a buoyant effect on the demand UPHOLSTERED for furniture. LAWN UNFINISHED MATTRESSES AN D BEDSPRINGS Architectural crosscurrents The way houses are built influences how much and what type furniture people buy. Indeed, there are those who say our heterogeneous D IN ING RO O M A N D DINETTE LIVING RO O M (W OOD) BEDROOM (W OOD) RADIO, PHONOGRAPH AN D TV CABINETS architecture is partially responsible for the pro INFANTS' A N D CH ILDREN 'S"! fusion of furniture styles. -4 0 0 40 80 120 PERCENTAGE CH ANG E Though over-all floor space is increasing, there is a trend toward smaller rooms in new home— watching TV, reading, completing do-it- homes. This creates a demand for smaller pieces yourself projects. One reason is the long-standing and built-in storage space to take the place of tendency of man to withdraw to the castle in furniture. Dining rooms are shrinking into din troubled times. Entertaining, too, is becoming ing areas or giving way entirely to large kit more homey with nightclubbers switching to chens. As a result, dinette and kitchen furni living room buffets. Since the home is being used more intensively, ture is a big seller. With more children to accommodate, the it is natural to want it to be more attractively number of bedrooms is increasing. In 1949, 30 furnished. With more guests to notice it, furni per cent of all new houses had three or more ture has an increased potential as a status bedrooms. Only seven years later the figure had symbol. zoomed to 80 per cent and it is probably still higher today. Naturally many more beds and O n the cuff bureaus are needed. The game or recreation Credit is an essential lubricant in the process room now included in many homes means a of selling furniture. The average furniture pur demand for more casual furniture. chase is large and 85 per cent of all sales are Alas, the porch is gone from new houses, and made on time. More furniture dealers carry with it the need for wicker rockers and gliders. their own retail paper than do other durable A slab patio has replaced the porch and has goods merchants, but bank and finance com created a demand for sun- and rainproof metal panies also play an important part. and plastic furniture. In 1955 furniture credit terms eased— lower down payments, long maturities— and this The castle w ith the crab g r a s s m o a t helped to bulge furniture sales. We have no Family life now centers more closely around the up-to-date information but it is reasonable to home. Parents and children have drawn closer assume that, since the same lenders are active together and spend more time doing things at in both fields, furniture terms tend to behave 18 business review in the same manner as automobile terms. Auto to inflation, nor to an increase in the number mobile terms have not eased materially in recent of households. Retail prices of furniture have years and it is likely that furniture has not re been stable in the past decade and expenditures ceived any significant boost from credit since per household have increased more than 60 per the mid-1950’s. cent since 1946. C om pe tition in the cornucopia demand for furniture is consumer income. Furni Never before have so many attractive consumer ture spending seems to seek a natural level of Perhaps the most important factor in the goods and services been available. But nearly around 1.5 per cent of disposable personal in everybody limited come. Spending has been near this figure during budgets and consumers must pick and choose the entire postwar period. If the traditional 1.5 has unlimited wants and and assign priorities. In a very real sense, furni per cent of income is maintained, furniture sales ture must compete with all the other things should zoom to around $8 billion in the year available to consumers— refurnish the house or 1970. This would mean an average of over go to Europe or buy a new car, buy a mew easy half a million dollars more sales a year for chair or an outboard motor, a coffee table or each manufacturer and $100,000 extra sales a new dress for mother. for each retailer in the nation. Furniture may be at somewhat of a disadvan There is reason to wonder about the 1.5 per tage in this competition. It is not exciting like a centage, however. vacation trip or a sports car. It is not cultural, educational, or entertaining. Furniture is not income families spend a smaller share of that income on furniture. Though some of the lustre Studies show that higher- heavily advertised and it contains no magic has been rubbed off the “ soaring” 1960’s, in ingredient. And, as we said, its purchase can in many cases be postponed. People can make do comes are still expected to rise sensationally. More and more families should be moving into with their old furniture when something more the upper brackets where furniture’s share of attractive catches their fancy. income declines. Success in the attempts to create dynamic IN C O N C L U S IO N obsolescence in furniture could put sales in orbit A number of factors have been tugging the de any time. This, however, may be too much to mand for furniture— some pulling up, others expect. A policy of accepting trade-ins would down. The net effect has been favorable. Furni help but neither the industry nor the product ture sales have moved up steadily to double their appears particularly well-suited to dynamic ob 1946 level. The rise has not been due primarily solescence. Furniture is still the different durable. 19 FO R TH E R E C O R D . . . EX B U S IN E S S *• / t FACTORY PAYROLLS, DIST. (1949 = 100) i» i> FA CTORY EMPLOYMENT, DIST. (194 9 = 100) j y 11 . , DEPAF TMENT STORE SALES, DIST. L V^ A r-A / a 11 /\A V» V CONSUMER PRICES, PHILA. t _ ______ . YE AR AC,0 2 YEARS AGO SEPT. 1960 Third Federal Reserve District Per cent ch an g e SUM M ARY Sept. I960 from 9 mos. I960 mo. year ago year ago - 2 + 10 0 8 6 0 8 F a ctory * U nited States E m p lo y ment Per cent c h an g e Sept. I960 from 9 mos. I960 mo. year + + + + 4 — 4 + 2 EM PLOYM ENT A N D IN C O M E Factory em ploym ent (Total) .......................... Factory w a ge in c o m e ...... TRADE* Departm ent store sales ... Departm ent store stocks .. B A N K IN G (A ll m em ber banks) D ep osits ........................ Loans ............................ Investments ................... U.S. G o v t, securities...... O th e r ........................... C h e ck paym ents ............ + - i 5 3 2 4 ago i + 18 0 — 4 + 2 6 — 6 + 16 — 5 + 4 — 4 + Lancaster ... — ago ago ago ago ago ago ago + 2 0 + 1 + 1 + 1 + 2 + • — 2f + + 2 4 + + + 2 + 0 2 0 2 4 + + — — — + 2 9 4 5 1 3| + + — — — + 1 M 7 9 2 5f + — + + + + + 1 1 2 1 2 2 1 0 + + + + — — — + 1 0 5 1 7 3 3 3 12 + 5 — 4 Ot + It + 2* (20 C itie s 0 0 + 0 1 2 — 3 + 19 + 4 + 1 + 3 0 0 + 1 - 2 - 4 + 1 + 3 - 2 + R e a d in g .... 0 - 3 0 - 4 + 3 + 2 0 + 2 - 7 + 10 0 - 2 3 - 1 + 2 — 4 — 5 - 5 - 2 + Trenton 0 — 5 - 2 3 + 4 + W ilke s-Ba rre 0 - 1 — 1 + W ilm in g to n . - 2 + 1 + 1 0 + 1 - 3 - 5 - 5 - 2 + 1 + — — — + 0 10 10 12 4 7 + 1 — 4 0 York .......... 1 1 Philade lphia Scranton .... — — ‘ A d ju ste d for seasonal v a ria tion. Lehigh V alley — ago H a rrisb u rg .. P R IC E S C o n su m e r ....................... Stocks Per cent Per cent Per cent Per cent Per cent c h an g e ch ang e ch ang e ch ang e ch ang e Sept. I960 Sept. I960 Sept. I960 Sept. I960 Sept. I960 ago OUTPUT M a n u fa c tu rin g p roduction. C onstruction contracts ... C heck Paym ents Sale s Payrolls year + - LO CA L CH A N G ES Dep artm e nt S tore f 0 2 (P h ila d e lp h ia ...... - - 3 - — 4 6 ^ — 4 + ^ — 15 — 5 6 + 3 — 1 - 9 — 1 + 3 6 0 - 1 + 1 + 11 - 5 + 13 + 3 + 1 0 - 2 1 - *N o t restricted to co rp o ra te im its of cities but cove rs areas of one or m ore counties. (A d ju ste d for seasonal varia tion.
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