REALITY CHECK: US HOUSEHOLD DURABLES MAKERS SAY DEMAND ROBUST
--'99 Household Appliance Shipments Will Smash Last Year's Record --Consumer Electronics Rebounding Strongly
in Holiday Season --Pricing Still Weak But Declines Less Sharp
By Gary Rosenberger
NEW YORK (MktNews) - Manufacturers of household durable goods say domestic demand for appliances and
consumer electronics remain very robust even compared to strong performances a year ago.
Household appliance manufacturers say 1999 will smash last year's record shipments by around 10% with no
downturn in sight next year.
Consumer electronics officials say the strong holiday season will lift overall sales of TVs, PCs, videocameras and a
host of totally new products about 15% above last year -- posting the best year since 1995, when PCs finally became
a must-have household item.
If the economy stays steady and the stock market behaves, there are no clouds on the horizon that would force
manufacturers and retailers to cut back, they say.
Household appliance officials say that while the direction of pricing continues to move downward, present-day
discounting is relatively moderate compared to prior years.
Consumer electronics officials note that, with some exceptions like PCs and videocameras, pricing is "stable" thanks
to strong consumer demand.
Overall major appliance factory shipments are up 9.25% year-to-date to November compared to the like period
last year -- which was a record year for overall shipments, said Jill Notini, a spokeswoman for the Association of
Home Appliance Manufacturers.
Notini said the increase was primarily fueled by a spectacular 41.9% rise for room air conditioners during the
Jan-Nov '99 period.
"Major home appliance shipments were up approximately 10% over 1998 and in some categories achieved record
levels," she said. "The strong economy will encourage consumers to remodel, update and replace older units in their
homes."
Notini observed that "while some U.S. market volatility is expected in the new year, the global economy is more
stable than in years past, which means manufacturers should benefit from new growth opportunities."
A marketing director for a major appliance manufacturer said all signs point to a strong holding pattern for next year,
despite a slipping housing market.
"We're seeing a significant increase over last year, which was a record year -- we're not just looking at breaking a
record by two-tenths of an inch," said the official, who asked not to be named.
"We haven't seen any dramatic fall-off (in housing starts), things keep moving along," he said.
"Starts have drifted lower, but nothing like some of the early predictions -- we haven't fallen off the edge," he said.
"In terms of the indicators we look at to judge our market, we still have a very upbeat economy -- people have
jobs, the unemployment rate is low, income is up, consumer sentiment is high," he said.
The upshot is that the housing market has weathered the rise in mortgage rates -- and that has kept appliance
shipments strong, he said.
"Current demand levels as measured in shipments continue to be very strong, and if consumer sales were to slow, it
wouldn't take long for inventories to back up," he said. "There's no evidence we're building inventory anywhere."
He also suspects a one-time boost may have lifted demand in the fourth quarter -- namely, a GE product recall in
October for some 3.1 million dishwashers built between April 1983 and January 1989.
GE responded to the recall with coupons worth $25 to $125 depending on the replacement unit. GE did not
immediately respond to calls.
Price degradation continues, but not at the alarming rate of 1997, the source said.
He added that he doesn't envision a scenario of prices going up next year, particularly with home appliance
manufacturers like GE moving operations to Mexico and pressuring their suppliers to follow suit in order to save on
manufacturing costs.
He said his forecast for 2000 is in a generally optimistic zone.
He admitted to being "gun shy" about forecasting, especially since the past two years far surpassed his own and
other economists' expectations. "We weren't expecting much for '99 and it turned out to be a really good year," he said.
"We're feeling more optimistic than some about housing as it translates to appliances," he said. "It's clear that
housing markets have peaked. even if they're not plummeting."
Having said that, "we're not looking for lots of growth (as measured in shipments) -- not another 8% or 10% growth
year -- but it would be nice to have levels similar to this year's on a unit basis," he said.
Consumer electronics, on the other hand, are firmly ensconced in a cyclical uptrend, according to Todd
Thibodeaux, senior economist for the Consumer Electronics Manufacturers Association (CEMA).
"Pricing has been more stable this year than in prior years because demand is so strong," he said.
"Manufacturers and retailers have not been forced to cut prices as much as in prior years," Thibodeaux said.
The biggest drivers of consumer demand are the stock market "and the incredible diversity of new products like
DVDs, palm pilots with wireless Internet, big screen and satellite systems," he said.
CEMA believes that about 30% of sales increases this year, the healthiest since 1994-95, is directly attributable to
the health of the stock market.
Among the strongest new products is TiVo, a device that allows individuals to control their own television
programming and control the action with slo-mo, instant replay, pause and other functions, he said.
Thibodeaux said consumer electronics retailers are reporting customer traffic is up 15% during the holiday season as
a result.
Sales of consumer electronics have been at between 9% and 11% in 1999 and should hold at about an 8% increase
next year, Thibodeaux predicted.
The PC market, which was what gave consumer electronics that big boost five years ago, is another large driver of
the industry's resurgence this year.
"With the free PCs offers and low prices, we've seen penetration go from about 40% of households 18 months ago
to about 55% -- there are 15 million new households with PCs -- and we're gaining on 60%," he said.
The Commerce Department is scheduled to release November durable goods orders Thursday at 8:30 a.m. EST.
Durable goods orders were down 1.2% in October after slipping 1.5% in September.
Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are
intended to complement and anticipate economic data and to provide a sounding into specific sectors of the U.S.
economy. |
