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issue: January 2008 APPLIANCE Magazine

Appliance Line
Weak Economy, Strong Industry


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Tim Somheil, Editor

2008 will be another difficult year—but the appliance industry knows how to make the most of tough times.

Tim Somheil, Editor

This issue of APPLIANCE contains our 56th Annual Appliance Industry Forecasts, informing our readers about the factors that could have an impact on their business in the coming year.

The Forecast is not always good news, and 2008 doesn’t promise to be a stellar year for the industry or the global economy. Many economists are predicting a 2008 economic downturn, including the Organization for Economic Cooperation and Development. The OECD tracks composite leading indicators that may foretell turning points in economic activity as much as six months in advance. The latest report indicates a weakening outlook for all the major seven economies OECD watches. But it predicts a strong downturn in only one: Japan.

The economic outlook isn’t nearly as dire as it is sometimes portrayed. The consumer media know doom-and-gloom reporting is more attention grabbing than news that is just moderately bad.

Unfortunately, 2007 provided much in the way of anecdotal evidence for those predicting dismal economic times. Gas prices continued to fluctuate, and the average man or woman on the street still has not received a satisfactory explanation for it. The housing market in the United States started 2007 in a slump, but then had the rug pulled out from under it when the subprime mortgage crisis erupted. Credit tightened, new home sales dropped further, and remodeling slowed. The upcoming presidential election put more focus on these economic problems and ramped up public concern even more.

Forecast 2008: 40% Chance of U.S. Recession

More unfavorable signals came from the U.S. economy in fourth-quarter 2007. The housing market continued to contract. Inflation worries increased sharply in November. These factors—combined with the credit crisis and consumers’ lower confidence—gave rise to predictions of a possible 2008 recession. The often-optimistic David F. Seiders, chief economist for the National Association of Home Builders (NAHB), projected a 40% probability of an economic recession in the coming year. One of the contributing factors: an unanticipated slowdown in consumer spending in fourth-quarter 2007.

“Everything considered, we’re now estimating GDP growth of only 0.5% in the fourth quarter, not far from the recessionary red zone, and we’re also projecting decidedly subpar growth early next year.”

Seiders’ comments came before a mid-December report from the U.S. Department of Commerce showing November retail sales were up more than expected. Seiders remains confident that a recovery in home building will begin this year. “Sales and production for 2008 as a whole will most likely turn out to be below the 2007 totals, but crucial turning points are likely to be registered during the year—assuming the Fed keeps us out of recession and mortgage markets function more normally.”

The Means to Survive

Credit rating agency Fitch Ratings said in December that the economy will bring pressure on U.S. consumer products companies in 2008. “Nonetheless, companies are anticipated to offset these pressures through price increases, cost reduction programs, and a focus on growing international operations,” Fitch reported.

The appliance industry has been contending with volatile raw-materials and commodity costs for years, and have strategies in place to deal with them.

“In 2008, selected pricing actions (by appliance producers) are expected to deflect higher costs from commodity inflation more than they have in the recent past,” Fitch said. “Also, productivity improvements, cost control, and product innovation should prevent a material hit to margins from lingering higher raw-materials costs.”

Fitch holds up Whirlpool as an example: realizing efficiencies from its Maytag integration, profiting from international business, and showing success with innovative product introductions.

Raising appliance prices may not seem like the logical move at a time when consumers have concerns about the economy, but the industry is making it work by offering more for the money.

Read more in this issue for our detailed Appliance Industry Forecasts:

  • Diane Ritchey, a 10-year APPLIANCE magazine veteran and former editor of APPLIANCE and Home Appliance magazines, provides our North American forecast report.
  • Adite Chatterjee, our correspondent in India, has also been writing for this magazine for more than a decade. She provides a report on the dynamic appliance industries in India, China, and the Middle East.
  • Jill Russell, another APPLIANCE veteran, reports on the European and Latin American industries.
  • David Simpson has been writing for APPLIANCE magazine for 27 years, and brings that experience to bear in our Materials Forecast, which projects how continually volatile raw-materials costs will affect the appliance industry worldwide in 2008. 

 

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