Housing, office furniture still under economic clouds

The economic signs are encouraging; company financials have improved. But some sectors of Michigan’s economy still are navigating bumpy terrain.

Office furniture production has climbed up from a 2009 trough, but, after seeing gains in 2010 and 2011, U.S. production is expected to drop 2 percent this year, then rebound in 2013, according to one industry forecast.

While the housing market looks to be moving toward improved health, it has a long way to go.

Despite the challenges, there are words and signs of optimism in these Michigan industries.

PulteGroup Inc., the nation’s largest home builder by revenue, is projecting a full year of profitability in 2012, “assuming our assumptions are right with regard to the market being stable and that we can continue to drive our improvements within our business,” said James Zeumer, vice president of investor and corporate communications.

The Bloomfield Hills-based company posted a loss of $210 million in 2011, but fourth-quarter results were improved from the previous year, with earnings of $13.8 million -- compared with a fourth-quarter loss of $165.4 million in 2010.

Data released March 20 by the U.S. Department of Commerce shows builders around the country more confident, with building permit requests in February hitting their highest mark since October 2008. Also for February, the National Association of Realtors said that while U.S. home sales slipped slightly -- 0.9 percent from January -- they were up 8.8 percent from year-ago levels.

In Michigan, February home sales were up 14.3 percent compared with a year ago, the Michigan Association of Realtors reports.

Pulte, which operates in 29 states through brands that include Pulte Homes, DelWebb and Centex, says its Michigan operations saw “a very nice improvement” over prior years with the company closing on more than 200 homes, Zeumer reported.

He added that in Michigan “you’re certainly seeing transactions starting to happen,” with houses that had been sitting on the market being purchased and new houses that are brought to market and priced right selling.

Zeumer said Pulte, given its large presence, felt the brunt of the severe U.S.housing downturn that began in 2006. Last year, new home sales in the U.S. were around 300,000, compared with a 2005 peak of 1.3 million, and Pulte’s employee base has reflected the decline. The company currently has about 3,500 employees, which is down from a peak in 13,500 in 2005. Zeumer didn’t have Michigan-specific figures.

Specialty trade contractors, a Michigan sector of which the majority of members are workers involved in home construction, employed 84,300 people in 2011, according to data from the Michigan Department of Technology, Management and Budget. That’s down 26,200, or 23.7 percent, from pre-recession levels in 2007.

Zeumer said PulteGroup has no current plans to change its work-force levels, but will be prepared for market changes.

The economic downturn didn’t just hit new home construction; it also lessened consumer appetite for home repair and remodel projects. And it’s affected Grand Rapids-based Universal Forest Products Inc.

Universal designs, manufactures and markets wood and wood-alternative products for retail home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for the residential construction market, among other products.

In its 2011 10-K annual report, the company said the market for retail building materials has been affected by a decline in consumer demand. Sales to the retail building materials market dropped 8 percent in 2011, affected by factors including a decrease in selling prices due to the lumber market and “a decrease in consumer spending for ‘big ticket’ building materials products such as decking and fencing. As unemployment remains high and housing projects have decreased, we believe homeowners have delayed plans for these projects,” Universal stated.

In the fourth quarter, though, the company saw overall sales up 11.4 percent from the previous year, reaching $422 million, and it posted sales increases in its retail building segment and all other segments, with the exception of residential construction.

Steven Chercover, research analyst at D.A. Davidson & Co. in Lake Oswego, Ore., said new home construction, and repair and remodel, are typically counter-cyclical -- if people aren’t going to buy a new house, they’ll spend money fixing up their existing house. But both activities have been hit.

Chercover thinks 2011 will prove to be the bottom of the housing downturn. He added, “As far as I’m concerned, the true economic recovery can’t happen without housing. The housing recovery is what it takes for us, in aggregate, to get to pre-recession levels.”

Herman Miller, Steelcase see customers

Members of Michigan’s office furniture industry see positive signs. In a March 22 investor conference call to discuss the company’s third-quarter results, Brian Walker, president and CEO of Zeeland-based Herman Miller Inc., said the U.S. economy “appears to be gaining traction,” with improvements in employment, business and consumer confidence measures, non-residential construction and architectural billing activity.

And, he noted, “corporate balance sheets remain flush with cash.”

White-collar job growth, corporate profits and nonresidential construction have long been the forward indicators for the industry, said Mark Schurman, director of corporate communications at Herman Miller.

“If someone were to presume that there’s been no recovery in the office furniture industry, they’d certainly be wrong.," Schurman said. "The question is, is there more upside?”

For the third quarter, Herman Miller posted sales of $399.8 million, which were down 3.6 percent from a year ago; new orders were 2.1 percent lower than in 2010. However, sales and orders in the prior year’s quarter included activity related to dealerships the company has since sold. Excluding that impact, net sales and orders in third-quarter 2012 were up 0.8 percent and 3 percent, respectively.

The company saw a slowdown in sales and orders to the U.S. government and within the health-care sector, but year-over-year increases in most other North American customer groups and international orders increased 12 percent over a year ago. The company looks to further its international business growth with the April 2 closing of its $50 million acquisition of a Hong Kong-based designer, manufacturer and distributor of office furniture.

At Grand Rapids-based Steelcase Inc., the company is seeing corporate customers spending money.

“It’s definitely swinging back into the spending category, as opposed to holding,” said Laura VanSlyke, public relations manager.

In the fourth quarter results reported March 22, Steelcase saw revenue growth that included a 13 percent year-over-year increase in itsAmericassegment and higher revenue from some of the company’s largest corporate customers. The segment encompasses the U.S., Canada and Latin America.

Overall, Steelcase revenue for the quarter was $690.2 million, compared with $622.9 million a year ago; net income was $14.9 million, compared to $10.4 million the prior year.

For this year, a forecast prepared by IHS Global Insight for the Business and Institutional Furniture Manufacturer’s Association predicts a 2 percent drop in U.S. office furniture production, followed by a 6.8 percent increase in 2013.

Tom Reardon, executive director of the association, located in Grand Rapids, said some of the drivers that affect the office furniture business have moderated and growth rate has slowed since latter 2011, but that doesn’t mean it’s lagging in the recovery.

“We were kind of ahead of the curve for a year and a half,” Reardon said. “So we led, now maybe we’re back on track.”

Amy Lane is a former reporter for Crain's Detroit Business, where she covered utilities, state government and state business for many years.