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The US economy is advancing at a healthy clip. Average GDP growth in 2003 stood at 3.1% and the first quarter of this year was with 4.8% still better. For 2004 as a whole we predict a rate in the 5% range. While such a fast rate is not sustainable, we do not think that growth will drop much below 4% next year.

Similarly, personal income is likely to advance from an average rate of 3.2% last year to 4.5% this year. Due to an expected increase in job creation, personal income may possibly grow in excess of 5% next year? If we take inflation and taxes into account, the growth rate of ? real disposable income this year and next will be only marginally higher than the 3.3% level of 2003.

Growth of American consumer spending stood at 3.1% in 2003. Parallel to the overall economic pace, it will rise to approximately 3.6% this year before declining to about 2.6% in 2004.

As durable consumer goods are rather sensitive to economic fluctuations, households?expenditures on such goods are generally very erratic. After a staggering growth rate of 28.0% in the third quarter of 2003 it fell into the negative territory at ?.1% in the last quarter. The average growth last year amounted to 7.3%. This high growth rate cannot be maintained. It may peak? close to 10% in the second quarter of this year, but is likely to decelerate for an extended period thereafter. The average rate for this year is predicted at 7.5% but less than 3% next year.

Residential construction has been a very strong sector of the American economy last year. In value terms, it grew by 7.5%, up from 4.9% the year before. Thanks to low mortgage rates, the performance will remain robust, albeit less vivid than in 2003. The growth of the residential construction-value may reach 6.3% in 2004 before descending to about 4.8% in 2005.? In volume terms, this translates into approximately 1.80 million new housing units in 2004 and 1.70 million units in 2005.??
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Furniture consumption has fluctuated less erratically than overall durable consumer goods. Last year started on a sour note, with sales in the first quarter being 1.4% below the corresponding quarter in 2002. However, thereafter, consumption started a steady and sustainable advance. This positive trend will likely continue for the foreseeable future.

As of 2003, furniture consumption in the USA amounted to $ 71.6 billion, up 2.7% from the previous year. For this year we anticipate a growth rate of 6.4% and another 4.5% next year. This would bring the market size to almost US$ 80 billion by 2005.

Quarterly data seasonally adjusted at annual rates Source: U.S. Department of Commerce, Strategic Projections Inc., AKTRIN

Quarterly data seasonally adjusted at annual rates

Source: Statistics Canada, Strategic Projections Inc., AKTRIN

Personal income growth in Canada has been advancing at a rate of 2.7% in 2003 which is slightly slower than the 3.3% rate in the previous year. We expect a noticeable acceleration this year, culminating at about 4.8% (at an annualized rate) during the last quarter, and averaging 4% for the year as a whole.

Some of the growth impetus goes on account of higher prices. If the impact of inflation and taxes is eliminated, the performance is more modest. After advancing by only 1.1% last year, growth of real disposable income this year and next is estimated to be in the 2.8% range. ??

The Canadian residential housing market is a bit oversupplied and decelerating at the moment. In value terms it advanced by 7.4% last year, down from a staggering 14.2% rate in 2002. Growth this year may be still a bit slower, that is at an estimated rate of 6.9%. In volume terms this represents 203,000 new units compared to 220,000 units in 2003.

Canadian consumer spending was and still is an important force contributing to the economy’s overall growth. It rose at a rate of 3.3% in 2003. It will remain strong ?albeit a bit slower ?this year, at an anticipated rate of 2.9%.

Helped by low interest rates, expenditures on durable consumer goods performed even better in 2003. Growth last year stood at 2.3% (down from 8.5% in 2002). As interest rates may increase later this year and since the accumulated pent-up demand is largely satisfied, spending on durable consumer goods will progress somewhat slower this year. ? In fact, we may even see zero-growth for this year as a whole.

The Canadian furniture market (at retail prices) has been plowing ahead without interruption since the second quarter of 2001. Last year’s market size
?stood at C$ 9137 million, up 8.6% from the C$ 8414 million the year before. Parallel to the retreating residential housing construction, the furniture market is likely to advance at a somewhat slower rate of 6.2% this year. If this materializes, the market value would approach ?but not surpass the C$ 10 billion mark. This will probably happen only in before 2005.

The American business sector performed very poorly up to the beginning of 2003. Pre-tax corporate profits fell by a disastrous 14.3% in 2001 and in 2002 they remained in the negative territory with ?.7%. Fortunately, the severe corporate rationalization measures had some positive effects. In fact, pre-tax corporate profit growth last year reached a healthy level of 13.5%. We expect a similar rate again this year.

Due to the past poor corporate profitability, business investments also fell by 7.2%, in 2002. Government spending provided some counterbalance to the sagging private sector investments. Indeed, growth of governmental investments remained in the positive realm in each and every year so far this century. 

In the wake of the improving business climate, private investments got out of the slump and progressed at a healthy rate of 11% (at annual rates) in the second half of 2003 and averaged almost 3.0% for last year as a whole.  For this year we expect continued brisk business investments, advancing by a projected 10.0%. Investments in machinery and equipment may grow still faster, that is approximately 13.0%. This prediction, however, is based on the assumption that interest rates will remain low in the years to come.

The employment market is not contributing much stimulus to the office furniture demand. After declining by 0.3% in 2002, there was some timid growth of less than one percent last year. Further improvements are expected for this year, but the growth rate will not likely exceed the 1.2% mark. 

Expenditures on non-residential construction ?including office space ?is very frail. It declined by a hefty -18.5% in 2002 and another -5.0% last year. While this year may see again a shrinkage of the non-residential construction value, it is to be hoped that next
  year will finally see some positive growth in the 3% to 4% range. In spite of the slow non-residential construction activity, the supply of office space is more than sufficient to accommodate any expansion of office employment.

Business outlays for office furniture (evaluated at end-user prices and including recycled furniture) has been falling from $ 37.2 billion in the second quarter of 2000 (at annual rates) to a low of
  $ 29.6 billion in the first quarter of 2003. This represents a drop of  over 20%. Even though some positive growth can now be detected, it is still shallow and reflects the overall sluggishness of business investment. Nevertheless, this year’s market valuation is likely to advance by almost 10% and reach $ 34.4 billion. This would be up from a value of $ 31.5 billion in 2003.

Canadian business profits  (pre tax) slid by 4.3% in 2002 but rose to a robust rate of 10.1% last year. It is not likely that the rate will remain at such a high level. ? Corporate profitability may come under renewed pressure if the value of the Canadian dollar remains strong. Due to Canada’s heavy export reliance, any currency shifts will immediately be reflected in the bottom line of corporations. We believe that corporate profitability in Canada will drop back to about 7.0% in 2004 and possibly still lower next year.

Quarterly data seasonally adjusted at annual rates

Source: Statistics Canada, Strategic Projections Inc., AKTRIN

Business investments are strongly influenced by corporate profits, albeit with a considerable time lag. Investments in machinery and equipment fell by -6.0% in 2002 and rose by only 3.4% last year. Fortunately, relatively strong governmental expenditures offered a counterbalance to the weak private sector investments.

Due to the general improvements in the economy, investment growth is likely to advance by a healthy 8.3% this year and may be even better next year. This, however, is dependent on a continuation of low interest rates.

One of the strongest segments in the Canadian economy was the employment market. It has been growing at 2.2% both in 2002 and 2003. This is equivalent to some 600,000 new jobs each year. Employment growth is likely to moderate a bit this year but we do not believe that it will drop below 2%.

There is sufficient vacant office space available in Canada to accommodate any expansion of office jobs. The subdued activity in office building construction during the past few years does not create an impediment to the growth of office employment at the present time. Furthermore, we anticipate that commercial construction will gather some steam this year and next. We predict an annual growth rate in excess of 5% (in value terms).

The Canadian office furniture market (at retail prices and including recycled furniture) grew rapidly up to 2001. However, in 2002 the market size came in at only C$ 3585 million or 3.1% below the previous year' value. This represented a drop of or C$ 113 million. ? Last year witnessed some improvements with an annual growth rate of 4.1%. This year, growth may slow down again to a rate of about 2.7%. In value terms, we predict a market size of C$ 3833 million, up from C$ 3731 million in 2003.