HIGH POINT — While it’s increasingly likely that interest rates will drop for the first time since March 2020, it might be a while before the furniture industry feels its effects.
By most indications, the Federal Open Market Committee is expected to cut interest rates by 25 basis points at its next meeting on Sept. 18. Rates have held in the range of 5.25% to 5.5% since mid-2023 after post-COVID increases in demand and shortages in supply were among the factors that led the Consumer Price Index to jump to as high as 9.1%. The FOMC views inflation at around 2% to be most consistent with the Federal Reserve’s mandate for maximum employment and price stability.
While those increased interest rates have slowed spending and brought the CPI down to an annualized rate of 2.9% in July, they also slowed the housing market down. Those factors have had an outsized effect on the furniture industry, as furniture is a delayable purchase and furniture sales are tied to housing starts.
If the cuts come as expected, when can the furniture industry start seeing benefits? Experts say there will likely be some short-term gains, but a resulting ramp-up in business will probably wait until early to mid-2025.
“It’s going to take a full point plus to get the housing market going. We’ve got to get housing starts going, and housing starts will drive furniture purchases,” said Tim Stump, president of M&A advisory firm Stump & Co.
Stump said if the rate cut comes as expected, the FOMC will then spend the next couple of months taking the temperature of the marketplace before its November meeting to see if that cut helped get things under control and to potentially cut again. Additionally, he said, a turbulent election season could be a bit of a wild card.
“I think we’ll see calmer seas and a little more consumer confidence by Q1 of 2025,” Stump said. “Some people are talking about post-election noise; half the country’s going to be disappointed, and there may be some short-term turbulence with that. It may take a little while for everybody to get back to business. I would certainly think by the end of Q1, we’re in calmer seas.”
Jerry Epperson, furniture industry analyst and a founder and partner with investment banking and corporate advisory firm Mann, Armistead & Epperson, said other factors to consider include the revision in the Bureau of Labor’s jobs report, which corrected an overstatement of more than 800,000 jobs added as of March.
Epperson noted instances of planned cuts that never came to pass because factors kept inflation from falling enough. “We’ve had the same thing happen twice before, if not three times before. They’ve said it looks like (a rate cut) is going to happen, and then something happens, and they didn’t do it,” he said. “I hope it happens. I think it will be good for all of us. I think it will be good for next year.”
If the cuts come as expected, Epperson expects banks and mortgage lenders to aggressively roll out programs to entice potential homebuyers.
“Most of their fee income is based on getting these transactions done,” he said. “When they don’t put out mortgages, they aren’t getting the fees for themselves. They want to get these mortgages. As soon as we see those rates drop, we’re going to see programs that will make it easier on the borrower, and that’s going to help us, too.”
That said, he expects another six to nine months to pass before furniture feels the full effects of a hale housing market.
“We’ll get some benefit before then. There will be some enthusiasm before then,” Epperson said. “You’ll see some retailers moving inventory before then, but I don’t think you’ll see the big movement before the second quarter or even the third.”