Furniture demand falls, ripples felt worldwide

By Emily Kaiser - Analysis

HIGH POINT, North Carolina (Reuters) - The aftershocks of the U.S. housing slump are hitting the global furniture industry hard, bankrupting U.S. retailers, slowing the flow of goods through shipping channels and shuttering factories both here and halfway around the world.

A decade ago, before U.S. furniture companies piled into China in search of lower costs, much of the pain would have remained at home. Thanks to globalization, it has spread, and there is little hope that business will improve until the housing market recovers.

It is a story that could play out in a host of products such as toys, clothing or appliances, where manufacturing has steadily moved offshore, linking the U.S. economy more closely than ever with China's. But because of its connection to the suffering housing market, the furniture sector stands out as the U.S. economy hovers perilously close to a recession.

Jeffrey Scheffer, the head of Stanley Furniture (STLY.O: Quote, Profile, Research, Stock Buzz), said last week that the industry was enduring its worst downturn since the early 1980s as the housing market and rising inflation hammer consumer confidence. His company is no longer expecting to turn a profit this year.

"Business, we believe, will come back. Exactly when, we are sort of clueless at this point, but we believe it will come back," he said on a conference call with analysts.

Stanley plans to close a North Carolina factory this year and cut 350 jobs, one of many U.S. furniture companies forced to retrench as consumers cut back on all but essential purchases in a slow economy.

The situation is similar in southeast China, where exporters are struggling to cope with falling U.S. demand as well as sharp increases in their own domestic labor and raw material costs. Countless factories have closed, and others have shifted to serve domestic demand.

At the height of the U.S. housing boom which ended in 2006, the U.S.-China connection was a money maker all around as China ramped up production and American companies reaped the benefit of lower costs. From 2003 to 2007, U.S. imports of furniture and household items from China jumped 78 percent to $13.95 billion, according to Census Bureau data.  Continued...