There is no question that the year 2002 had
economists walking on eggshells, anxiously awaiting
reports from the U.S. government and other key
economic gauges. On the surface, all seemed surprisingly
well - consumers were continuing to spend, leaving
many to wonder if the situation wasn't as bad
as anticipated or if a "post-boom" generation
was simply in denial.
The U.S. economy pulled out of its three-quarter
downturn in the fourth quarter of 2001, marking
the end to what many claim is one of the mildest
recessions in history. Results of the first three
quarters of 2002, however, started to yield more
questions than answers, showing increased government
spending, a strong housing market, and healthy
retail sales, but also indicating a less-than-steady
GDP, low capital spending, and high rates of
unemployment.
The start of 2002 seemed to be moving in the
right direction, with GDP jumping up to an annual
rate of 5 percent and, in turn, implying that
the U.S. was far from 2001's negative territory.
Most attributed the growth to inventory correction,
as manufacturers slowed down production and discounted
items to reduce the amount of stored goods. The
U.S. Department of Commerce said high rates of
government spending also lead to first-quarter
growth.
The second quarter, however, showed signs of
struggle. Real GDP grew at an annual rate of
1.3 percent in the second quarter, and consumer
spending - the economy's life support for the
last year - was starting to slow from the vigorous
pace of the first quarter. Widespread corporate
scandals, a slide in the stock market, a questionable
job market, and a possible war with Iraq seemed
to be affecting the confident U.S. consumer,
and businesses continued to keep their dollars
close. Talks of a double-dip recession and "gloom-and-doom" reports
were starting to surface.
As of press time, preliminary third-quarter
estimates put GDP at an annual rate of 4.0 percent,
with the major contributors being personal consumption
expenditures, government spending, (electronic)
equipment and software, private and inventory
investment, and exports, according to the Department
of Commerce.
The third-quarter GDP estimate was encouraging,
especially since it was higher than the advanced
estimate of 3.1. But more questions arose when
the Federal Reserve decided to cut interest rates
by a half-percentage point in early November
for the first time since December 2001. The Committee
agreed that "incoming economic data have tended
to confirm greater uncertainty," and that a sharp
cut was necessary to help boost the economy from
its current "soft spot."
Reactions were mixed as to whether the cut would
further stimulate the economy, but the major
concern was what would be done if certain factors
- such as very possible war with Iraq - did put
the U.S. economy into another downturn. With
the Fed practically using up all of its reserves,
the nation would have to turn to U.S. President
George W. Bush for a successful package that
would finally encourage capital spending, the
missing link that most believe could bring the
U.S. into full recovery.
When Will It End?
As of press time, the National Bureau of Economic
Research (NBER), an authority in monitoring business
cycles and economic activity, had not officially
indicated the end of the recession, as it often
waits several months after the perceived recovery
to ensure that the downturn is truly finished
and not just in a "lull."
It's notable that the NBER does not rely on
GDP to track the economic activity because it
is only monitored on a quarterly basis. Instead,
it bases estimates on four monthly indicators
- unemployment, personal income, the volume of
sales of the manufacturing and wholesale-retail
sectors, and industrial production. The first
two principal indicators measure activity across
the entire economy and the latter two cover manufacturing
and goods.
While it has not been "officially" announced,
the majority of analysts agree that the U.S.
has in fact pulled out of recession, and one
by one are giving "cautiously optimistic" forecasts.
Most economists also seem to concur that a double-dip
recession seems highly unlikely, specifically
because consumers are showing no signs of drastic
decreases in spending.
In fact, according to the University of Michigan's
(U-M) annual economic forecast, the American
economy will improve in 2003 and will surge to
levels of the late 1990s by 2004. Saul Hymans,
U-M professor of Economics, said that while he
doesn't expect another "boom" any time soon,
he does believe the economy will pick up steam
in 2003. "Our forecast is based on a scenario
in which things aren't quite as bad as we've
been fearing - no major new corporate scandals,
the job outlook stabilizes, and profits improve
slowly, things get temporarily dicey in Iraq
as the inspections become more intrusive, but
no big blow up," he said.
In their annual forecast of the U.S. economy,
Mr. Hymans and colleagues Joan Crary and Janet
Wolfe report that national economic output, as
measured by real GDP, will expand at a rate of
4.0 percent by mid-2003 and will remain at that
rate in 2004, resembling the average growth rate
experienced during 1995-2000.
On the whole, Mr. Hymans et. al. forecast the
economy to expand by 2.5 percent in 2003 due
to slow economic growth anticipated early in
the year. The number is only slightly better
than the 2.3-percent growth projected for 2002,
but quite healthy compared to the mere 0.3-percent
growth registered in 2001.
Falling unemployment, moderate inflation, and
low, but slowly increasing interest rates are
expected to accompany a rise in economic growth
after mid-2003. "As final demand growth accelerates
during the year, business [will] respond with
higher levels of inventory investment," Mr. Hymans
said. "Near-term economic weakness pushes up
the unemployment rate at the turn of the year,
but the labor market is strengthening by mid-2003," he
added.
The Consumer Contribution
Most agree that the spending consumer has played
a major role in keeping the U.S. economy afloat,
especially since businesses have maintained low
confidence levels. The main concern, then, has
been whether or not the consumer will get "spent
out" after more than a year of spending in spite
of the economy, taking advantage of record-low
interest rates, zero-percent financing, and sales
on everything from clothing to small appliances.
Realistically, how many cars can a consumer fit
in his or her garage?
September 2002 reports started to show a softening
in both consumer spending and confidence. The
Commerce Department reported a drastic drop in
durable good orders of 5.9 percent after only
falling 0.6 percent in August. In addition, the
U-M's monthly Index of Consumer Sentiment was
also down for the fourth consecutive month.
Durable goods bounced back in October, but the
U.S. government said that was lead by demand
for machinery, transport, and communications
equipment, suggesting business spending was finally
starting to pick up. The consumer, however, continued
to show low confidence levels, as the U-M Index
dropped to the lowest level in 10 years. The
Conference Board's Consumer Confidence Index
showed similar results, dropping to its lowest
level since 1993.
The good news is that November painted a brighter
picture, with both the U-M and Conference Board
indexes showing increases in consumer confidence.
However, manufacturing contracted for the third
consecutive month, according to the Institute
for Supply Management's index. As of press time,
durable good totals were not yet released.
The pending question is whether or not the consumer
will remain resilient, and if the cocooning effect
that occurred immediately following the U.S.
terrorist attacks will continue to keep appliance
sales at healthy levels.
Housing activity is one way to gauge appliance
sales, as refinancing usually spurs remodeling,
and new houses require appliances. According
to David F. Seiders, chief economist for the
National Association of Home Builders (NAHB),
the housing market has continued to perform quite
well in the face of an uncertain economy. Even
before the Federal Reserve's Nov. 6 interest
rate cut, mortgage rates had fallen to the lowest
level since the mid-1960s.
While housing starts decreased in both August
and October, NAHB said it remains confident that
housing activity will remain at its record levels
in 2003. In his November editorial, Eye on the
Economy, Mr. Seiders said: "Great financing conditions
supported robust levels of permit issuance (single-family
and multifamily) in October, paving the way for
strong housing starts in the coming months following
a weather-related sag in October. Further, NAHB's
Housing Market Index for November showed a systematic
strengthening of builder attitudes toward current
and future conditions in the single-family market,
and surveys of lenders show that applications
for mortgages to buy homes were quite good through
the middle of the month."
The Association also believes that the possibility
of the much-discussed housing bubble is quite
low. Even though housing starts declined by 11.4
percent in October, the rate at which permits
were issued was up. In a Nov. 20 statement, Gary
Garczynski, NAHB president said, "It would be
a big mistake to equate today's report with some
kind of 'bubble' effect. Builders simply took
a breather after a feverish pace of activity
in September. While the drop-off was more than
expected, single-family housing production remained
above the third quarter's robust 1.34 million-unit
pace. Moreover, Commerce's report on housing
permits sets the stage for increased production
in the months ahead."
In addition, a housing bubble is traditionally
created by speculators who hope to make fast
returns by buying homes and quickly selling them
at higher prices, according to Raphael Bostic,
a former senior economist with the Federal Reserve
Board of Governors. The current situation, Mr.
Bostic told Real Estate News in early October
2002, is quite different. "When buyers see home
prices rising, they decide to jump in to the
market while they can still afford housing," he
said in the report. "This is perhaps the ultimate
buy and hold strategy - just the opposite of
speculation."
Canadian Confidence
America's northern neighbor, Canada, remained
economically healthy in 2002 after skirting a
recession in 2001. Second quarter GDP was four
times the U.S. rate, totaling an annualized rate
of 4.3 percent.
In a November 2002 statement, Kip Beckman, principle
research associate at The Conference Board of
Canada, said, "Canada has managed to avoid the
global economic slowdown and has been one of
the top performers in the world, both in economic
growth and in job creation. Unlike central banks
in most parts of the world, the Bank of Canada
is leaning toward increasing interest rates to
cool down the economy."
The Conference Board of Canada forecasts real
GDP to grow 3.5 percent in 2002, and all provinces
are expected to achieve economic growth near
or more than 3 percent in 2003.
"The Canadian economy remains extremely strong," confirmed
Ken Elsey, vice president of the Canadian Appliance
Manufacturers Association (CAMA). "The government
is looking to move to encourage a stronger dollar.
Generally speaking, the housing market remains
extremely strong. Building across Canada is unprecedented.
They're calling for a forecasted 10-percent rise
in the cost of housing next year in Canada. And
that is simply because of pent-up demand, low
interest rates, and a lower-than-expected unemployment
rate. So, everything is tracking in a positive
way."
Therefore, he told APPLIANCE, CAMA expects an
overall 2.5-percent increase in major appliance
sales in 2003. He adds that high-end appliances
will "lead the charge," including stainless steel
models and new products that have easier maintenance. "The
interesting thing that I'm starting to sense
is that white goods are moving out of a commodity
market into a fashion market," explained Mr.
Elsey. "The consumer is now saying, 'Well, if
I'm going to make the investment in a new appliance
and the life expectancy is so long, I might as
well buy the product with all the bells and whistles
and looks that I really want because, after all,
I spend so much time in my kitchen.'"
He added that one major issue that has affected
- and may continue to affect - the Canadian appliance
industry is deregulation. "There's major issues
now in Ontario with the deregulation of hydro
production," Mr. Elsey told APPLIANCE in late
November. "The government moved to totally deregulate,
but as the price of electricity jumped - almost
doubled - the government stepped in and put a
price cap on hydro costs. But that subsequently
tilted the initiative toward deregulation. If
that had not happened, and the price of electricity
was allowed to find it's own level and a more
competitive market developed, I think that would
have been good for the appliance industry in
that the energy-efficient levels would have resulted
in faster payback of new product," he continued.
"If hydro costs had been left to find their
own levels, then I may have been sitting here
saying you can expect a 4-5 percent increase
in 2003. That deregulation turnaround by the
provincial government in Ontario, which is half
the Canadian market, probably softened the potential
for growth in 2003," he said.
In its 2002 Major Appliance Industry Trends
and Forecast, CAMA forecasts core product (refrigerators,
ranges, washers, dryers, and dishwashers) sales
to grow by 2.9 percent over the 2002-2004 forecast
period. Core and non-core products (freezers,
microwave ovens, cooktops, room air-conditioners,
and food waste disposers) are expected to increase
approximately 1.7 percent during 2002-2004, increasing
from 4.62 million units in 2002, to 4.65 million
in 2003, and 4.70 million in 2004.
While freezers and room air-conditioners are
forecasted to be flat during 2002-2004, CAMA's
data shows growth in the rest of the categories.
Microwave ovens will continue to be the leader
in unit volume with a forecast of 870,000 units
in 2004, and cooktop volume will continue to
increase at approximately 3 percent per year.
Major Optimism
In spite of sluggish economic conditions, the
U.S. major appliance industry managed to do surprisingly
well throughout 2002, and most analysts and major
players expect that to continue into 2003.
In its November 2002 major appliance Trends
and Forecast, The Association of Home Appliance
Manufacturers (AHAM) projected approximately
65.7 million units to be shipped in 2002, a 4.8-percent
increase over 2001. For 2003, it forecasted 68.7
million units shipped, up 1.6-percent from 2002.
As of press time, the projection seemed to be
on target, with October 2002 year-to-date shipments
showing a 4.9-percent increase over the same
period in 2001.
Industry research firm Economy.com forecasted
a more conservative increase of 3 percent in
2002 unit shipments over 2001 and a 1.35-percent
increase in 2003, numbers that matched AHAM's
earlier, May 2002 forecast. The firm also projects
sales to be slightly up in 2002 and 2003, with
increases of 1.9 percent and 1.0 percent, respectively.
It expects sales to reach higher levels in 2004
and 2005, with increases averaging 2.7 percent
per year.
Standard & Poor's (S&P) forecast for the Household
Durables Industry also indicates that the major
appliance industry will see gains in both 2002
and 2003. "I expect 2002 industry shipments -
both major appliances and the AHAM 6 - to be
up mid-single digits," Efraim Levy, senior appliance
analyst, S&P Equity Group, told APPLIANCE. "The
economy, while slowly growing, has supported
demand. Strong housing activity and new features
on products were factors stimulating demand.
Consumers have been the mainstay of the economy
despite reductions in the confidence index."
He also predicts low- to mid-single digit gains
for 2003. "People will fill the new homes they
bought in 2001 and 2002," Mr. Levy explains. "Housing
starts were up 1.9 percent in 2001, and we forecast
a 5.4-percent rise in 2002, which carries over
into 2003 demand."
The proof, however, will most likely be in U.S.
manufacturers' fourth-quarter results. In September,
top producers Whirlpool Corp. and Maytag seemed
divided on full-year 2002 and 2003 expectations,
although some speculated that had more to do
with their individual circumstances than overall
industry trends.
Whirlpool had a rather positive year, with the
successful releases of its Duet laundry products,
the Polara refrigerated range, the Personal Valet
clothes vitalizing system, and its new Gladiator
GarageWorks line, as well as making major acquisitions
of Polar S.A. of Poland and Vitromatic S.A. de
C.V. of Mexico.
Third-quarter core earnings confirmed the producer's
optimism, reporting an 11-percent increase over
the third quarter of 2001. Whirlpool North America
posted record sales in the quarter, with a 6-percent
increase in sales over the same period in 2001
(including Mexico). "Our regional business performed
well during the quarter, despite economic pressures," David
R. Whitwam, Whirlpool's CEO, said in an Oct.
16 statement. "The solid results were driven
by the success of our brands and innovation initiatives
in the marketplace…and by the benefits of our
restructuring and productivity improvements."
Whirlpool also said that third-quarter U.S.
appliance shipments were nearly 1-percent higher
than the record shipments recorded during the
same period in 2001, and it expects fourth-quarter
shipments to increase another 2 percent. In a
September announcement, the company projected
a 5-percent increase in appliance shipments for
the full-year 2002. Additionally, during a September
presentation at the annual Steel Service Institute
Conference, Neil Cline, Whirlpool's manager of
Economic Forecasting, projected a 3-percent growth
in industry sales for 2003.
Maytag, however, has been less optimistic. The
company lowered its third-quarter earnings expectations
in late September, stating that the economic "environment
has been more challenging than expected." It
also announced that it will close its Galesburg,
IL, U.S. refrigeration plant in 2004, while gradually
decreasing production in 2003. The company announced
that the plant closing is part of a new refrigeration
production strategy aimed at making Maytag more
competitive; a plan that will include the construction
of a new plant in Reynosa, Mexico that is expected
to open in late 2003.
Maytag's third quarter earnings were only $0.01
higher than its lowered outlook, but were still
48-percent higher than the same period of 2001.
CEO Ralph F. Hake said in an Oct. 14 statement: "We
continue to see dramatic improvements in year-over-year
performance despite what is admittedly a challenging
environment for home appliances. On a limited
sales increase of 3 percent for the quarter,
our net income was up 48 percent, excluding the
one-time gain…. Through the first three quarters,
our sales are up 15 percent and our comparative
net income is up 79 percent."
According to a Sept. 24 Reuters report, Maytag
expected third-quarter 2002 industry shipments
to be lower than the same period in 2001, with
a 1-percent decline in the fourth quarter. Additionally,
in an October conference call, Mr. Hake said
that he does expect Maytag to meet its earnings
outlook for 2003 as long as industry shipments
are flat to up to at least 2 percent. A Nov.
20 financial statement said Maytag's outlook
includes a 7-10 percent increase in revenues.
Although not as vocal about its earning expectations,
GE did raise some eyebrows when it made some
structural changes in 2002, integrating its Appliance
and Lighting businesses under the umbrella, GE
Consumer Products, in order to make the businesses
more competitive. The manufacturer reported flat
third-quarter sales for its Appliances business
versus 2001, but showed a 7-percent increase
in 2002 year-to-date figures over the same period
in 2001.
BSH Home Appliances Corporation showed some
confidence in the market in 2002, breaking ground
in February for a $154-million expansion to its
U.S. facility. The company says it is optimistic
about 2002 and 2003 shipments. "The year 2002
should end with appliance shipments showing an
increase from last year," Dwayne McCormick, director
of Merchandising told APPLIANCE. "Demand has
remained reasonably strong because of low interest
rates, allowing for home purchases and remodeling
to continue at a robust pace for the first 9
months of 2002."
Mr. McCormick also said 2003 appliance shipments
will show growth over 2002, with the most modest
gains in the first quarter. "While interest rates
for home purchases are low, tighter credit may
hold sales down from the growth we all want," he
said.
Steve Piro, president of AM Appliance Group,
agreed that shipments would be up by the end
of 2002, but added that growth won't be as high
in 2003. "The consumer is running out of steam," he
told APPLIANCE. "Debt is at a high level, and
most people have already taken advantage of refinancing.
We don't expect to see the growth that was experienced
in 2002."
Samsung Electronics America says that microwave
oven shipments will be relatively flat in 2002,
as a slight decline in countertop units due to
low consumer confidence will be offset by increases
in over-the-range models due to the housing and
refinancing boom.
Dan Baxley, Samsung's director of Marketing,
Home Appliance Division, said he expects microwave
shipments to be flat in 2003 as well, assuming
that the economy continues to recover. "Volume
could drop significantly if there are additional
shocks to the economy such as a shooting war
in the Middle East, another terrorist strike,
or new revelations of corporate misgovernance," he
explained.
Michael Jemal, president of Haier America, added
that increased competition and price erosion
will be major factors appliance producers will
face in 2003. "Acquisition costs of components
are not keeping pace with the price erosion,
and labor costs continue to rise. This is causing
massive pressure on profitability," Mr. Jemal
told APPLIANCE. "Innovations to existing products
and introduction of new 'category products' are
ways to offset some of these pressures. Whirlpool
has demonstrated this approach through their
new Gladiator line."
According to Dale Persons, vice president of
Public Affairs for Viking Range Corporation,
the higher-end appliance segment has particularly
benefited from the high housing and remodeling
activity. "2002 has been a very good year for
us," Mr. Persons said in late November. "Our
numbers are up over 2001. Of course, it would
have been an even better year if the economy
had been stronger in the fourth-quarter particularly."
He expects 2003 to be a good year as well. "All
of our indications lead us toward being cautiously
optimistic," Mr. Persons told APPLIANCE. "Home
improvement, new home sales, remodeling, etc.
should continue to be strong if the interest
rates continue to be positive in that way. The
stock market, in general, of course is going
to be a major factor. That is just going to affect
everybody's business in general."
Mr. Persons added that because of the uncertainty
in the stock market and other investments, consumers
are more likely to invest in their homes and
premium products, whether its appliances or other
high-end consumer goods. "Consumers in general
are looking for secure investments. But those
in the high end, particularly, are looking at
our types of products - luxury products - as
a long-term investment."
Philip J. Uihlein, president of U-Line Corp.,
maker of high-end under-counter refrigerators,
agreed that upscale appliance categories performed
better overall in 2002 than other sectors, but
also noted that poor economic conditions still
affected the high-end market. "The upscale appliance
markets faired much better than other industries,
especially at the manufacturing level, in part
due to the strength in housing markets and because
our customer is affected less by slowing economic
trends," he said. "The flat sales activity was
nevertheless affected by the downturn in the
economy. The slowdown did cause a fair number
of our typical customers to buy lower priced
or more competitive models in our product category.
U-Line, on the other hand, posted a 21-percent
increase in sales."
Comfortable Levels
The HVAC industry also benefited from the housing
activity of 2002, with most categories showing
promise for positive growth by the end of the
year. As of October 2002, year-to-date shipments
of room air-conditioners were up 10 percent compared
to the same period in 2001, and central heating
- including gas and oil furnaces and boilers,
as well as steel boilers - showed a 3.9-percent
increase.
In his keynote address at the Air-Conditioning
and Refrigeration Institute's (ARI) annual meeting
in November, Chairman Thomas E. Bettcher said
that 2002 shipments for residential and light
commercial unitary air-conditioners and heat
pumps are expected to be well over the previous
record of 6.7 million units. He also said the
value of air-conditioning and refrigeration equipment
installed in 2002 totaled an estimated $45 billion,
which will provide steady business in the next
few years as those units are serviced and replaced.
Dale Green, vice president of Sales & Marketing,
Trane Residential Systems Business Group, estimates
that 2002 air-conditioning and heat pump industry
unit shipments will be up nearly 8 percent versus
2001. "The single-family new construction activity
has held steady all year with no sudden downward
bubble affecting HVAC shipments. The consumer
replacement segment was reflective of an overall
cautious economy, but the sustained hot weather
in the [U.S.] northeast drove significant growth
over last year for the entire industry," Mr.
Green said.
Looking ahead, Trane expects 2003 to be flat
with the outstanding 2002 industry shipments
level; that is, assuming a normal summer in terms
of temperature, according to Mr. Green. "Residential
new construction is quieting down some versus
the early 2002 pace, but should, again, mirror
2002. In total, Trane predicts 2003 to have a
normal replacement cycle, and manageable residential
new construction all year. Obviously, this could
all change depending upon what happens on the
international front. That aside, 2003 will be
a good, solid year for the HVAC industry," he
said.
Rheem Manufacturing Company, Air Conditioning
Division, agrees, projecting both air-conditioning
and heating shipments to be up in 2002 due to
several economic factors. "Interest rates and
inflation are forecasted to decrease through
the end of 2002, while we expect energy prices
to remain steady. These, factors combined with
a rise in GDP and increased replacement demand,
will lead to a slight increase in shipments for
2002," Karen Meyers, manager of Market Research
and Government Affairs, told APPLIANCE.
She added that air-conditioning shipments will
most likely hold steady in 2003, with a slight
increase in heating shipments. "By the end of
2003, unemployment is forecasted to be down from
2002 levels while inflation and interest rates
will have begun their upward climb. Consumer
confidence is anticipated to rise, with new housing
rates leveling off. These factors will balance
out, leaving the HVAC industry unchanged," Ms.
Meyers said.
Frank Hartman, vice president and general manager,
Sales and Marketing, for Carrier added that as
a partner to the homebuilding industry, economic
conditions will continue to directly affect the
HVAC industry. "We believe that consumer confidence,
coupled with an economic recovery and the stability
of interest rates are the greatest challenges
for next year," Mr. Hartman told APPLIANCE. "The
question of a looming housing bubble is a related
area to watch."
With the reported decreases of business spending
throughout 2002, the success of the commercial
HVAC in 2003 will also heavily depend on the
economy, according to John Whinery, director
of Commercial HVAC Marketing for Lennox Industries
Inc. "For the North American HVAC marketplace,
there are many trends that can have an impact," he
said. "Bank Lending and government funding
will definitely be a contributing factor to the
health of the construction industry. The diminished
stock prices and overall distrust of Corporate
America will continue to have its effects on
commercial capital expenditures. Adoption and
enforcement of new commercial building code standards
will continue to drive higher standards for HVAC
equipment. Another variable will be to what extent
the U.S. housing market will be able to maintain
its current pace."
The heating sector of the HVAC industry is
expected to remain at comfortable levels. Based
on projections provided by its member companies,
the Gas Appliance Manufacturer's Association
(GAMA) foresees moderate but steady growth for
most space and water heating products over the
next 4 years. For 2003, it expects more than
2-percent growth in shipments of residential
gas furnaces, followed by increases of 4.5 percent
annually through 2006. Shipments of cast iron
gas boilers are expected to grow more than 4
percent for 2003 and again in 2004. Cast iron
oil boiler shipment projections for 2003 are
at a 1.5-percent increase, with increases of
1.4 percent for 2004.
The new year will also see some design changes
for the comfort-conditioning category, especially
the water heater segment, according to David
R. Martin, vice president of Marketing for Rheem
Water Heaters. "The number one story in
the water heater industry in 2003, affecting
the entire chain of distribution including the
consumer, will be the new technology for flammable
vapor ignition resistance (FVIR)," explained
Mr. Martin. "FVIR represents the most extensive
product-design change since modern water heating
was invented more than a century ago."
Effective June 30, 2003, 30-, 40- and 50-gal,
gas-fired, atmospherically vented water heaters
with input ratings of 75,000 BTU/hr or less and
produced on or after this date must be tested
to a new American National Standards Institute
(ANSI) Standard ANSI Z21.10.1-2001.
According to Mr. Martin, the new FVIR standard
will not affect the current installed base of
residential gas-fired water heaters, or any unsold
water heaters made prior to the effective date.
Change-out of existing water heaters, however,
will not be a requirement.
Floor
Care Forecasts
As of press time, vacuum cleaner sales remained
steady, with industry sales up 1.2 percent for
the first 9 months of 2002 compared to the same
period in 2001. Full-size vacuum cleaners, however,
were down 4.7 percent in the third quarter of
2002 versus 2001. Central vacuum cleaner sales,
not included in aforementioned data, were up
6.2 percent from 2001's performance through the
first 9 months.
Jim Holcomb, vice president of Marketing & Business
Development for Royal Appliance Manufacturing
Company, said Royal expects floor care shipments
to be up 3-4 percent in 2002, but sales dollars
to be flat or slightly down. "This is due
to continuing pricing pressure in the key upright
segment and a 'mixing down' in upright carpet
extractors," he explained. "Upright
average bills at retail have been declining for
3 years after rising for the 3 years prior to
that. As bagless vacuum cleaners became popular,
many consumers 'stepped up' by $75-$100 per unit
to get this feature. Over the past couple of
years, the opening price point for bagless uprights
has come down to the $79-89 range. This has driven
very large volume, but at lower prices."
While historically floor care units have been
up 5 percent per year, Mr. Holcomb thinks 2003
will be a little soft due to the sluggish economy. "I
would anticipate 3-percent unit growth and flat
dollars for the year," he said.
Dave Gault, vice president of Business Development
at The Hoover Company, also believes that shipments
will be up by end of 2002, but at a lower value. "We
think that full-size floor care units will be
up, but we see that being offset by a decrease
it value, with the exception of new entries in
the bare floor category like our Floor Mate," Mr.
Gault said. He attributes this simply to lower
prices. "There's a competition among manufacturers
and retailers to take pricing lower in the absence
of true innovation," he said.
For 2003, Mr. Gault said that Hoover is hopeful
that the price erosion of the last couple of
years will finally bottom out. "I don't
know if we can say that the prices will increase,
but we're hopeful that there will be no further
additional price erosion," he told APPLIANCE. "We're
optimistic and expect growth in units and dollars.
We see this in the full-sized products. There
are some categories such as our extractors that
will continue to benefit because of low penetration." Extraction
penetration, he said, is about 25 percent, leaving
a lot of room for adoption in that product category.
Another factor that may challenge the mature
U.S. floor care industry in 2003 is the entrance
of some new players, namely UK vacuum cleaner
maker Dyson Appliances; Euro-Pro and Salton,
both of which purchased assets from the now defunct
Fantom; and ProTeam, a maker of commercial backpack
vacuums. Established players such as Panasonic
and Sharp were also talking about enlarging their
roles in the sector.
In an October 2002 statement, Keith Minton,
Hoover president, said he welcomed the new competition. "Competition
pumps vitality into the industry, stimulates
innovation, and gives the consumer many choices," he
said. "We applaud the entrepreneurial spirit
that moves new players to get involved. That's
how the Hoover story began 95 years ago, and
that's what keeps Hoover on a journey of continuous
improvement, fed by research and development."
Small
Issues
The cocooning effect the electric housewares
industry claimed would help sales in 2001 seemed
to be fairly accurate, as the sector finished
up 2001 with a respectable 6.5-percent increase
in sales over 2000, just shy of the 6.7-percent
record growth recorded from 1999 to 2000, according
to The International Housewares Association (IHA).
Whether or not 2002 equally benefited, however,
remains to be seen.
AHAM's Portable Appliance Division's October
monthly statistical report revealed that cooking
and food processing appliances were doing fairly
well for the first 10 months of 2002. Although
the category saw decreases in the first 3 months
of 2002, October results showed a 22.4-percent
increase in shipments over October 2001. In addition,
year-to-date shipments through October 2002 were
5.9-percent higher over the same period in 2001.
Air treatment products, however, did not have
a good year, registering year-to-date decreases
for every month of 2002 compared to 2001. July
2002 showed a glimmer of hope, recording a 20.1-percent
increase over July 2001, but October 2002 (the
most recent data available) was a whopping 23.2-percent
lower than the same month in 2001.
Third-quarter financial results were mixed
between the top electric housewares manufacturers.
NACCO Housewares Group, which includes NACCO's
Hamilton Beach/Proctor-Silex (HBPS) and Kitchen
Collection subsidiaries, reported net income
of $4.6 million for the third quarter of 2002
on revenues of $148.4 million compared to net
income of $0.3 million for the third quarter
of 2001 on revenues of $155.0 million. For the
9 months ended Sept. 30, 2002, the Group had
net income of $2.2 million on revenues of $404.5
million compared to a net loss of $2.7 million
on revenues of $433.4 million for the first 9
months of 2001.
In an Oct. 24 statement, NACCO said that HBPS
anticipates that ongoing programs to reduce manufacturing
overhead costs and improve manufacturing efficiency,
product quality, and customer service will continue
to have a positive impact on results in the fourth
quarter of 2002. The company said it is cautiously
optimistic that markets for consumer goods will
improve in the fourth quarter of 2002 compared
to the fourth quarter of 2001. NACCO did, however,
caution that shipments in the fourth quarter
of 2002 at both its HPBS and Kitchen Collection
subsidiaries could possibly be reduced by delays
due to congestion at West Coast ports.
Applica Incorporated announced that third-quarter
sales for 2002 were $194.9 million, a decrease
of 4.1 percent over the third quarter of 2001.
For the first 9 months of 2002, net sales declined
2.1 percent to $505.9 million as compared to
$516.7 million in 2001. The company blamed continued
weakness in Latin American and Canada, combined
with softening U.S. sales as the major contributors
to the declines in the quarter and first 9 months.
The declines were partially offset by an increase
in sales of pest control products, it said.
David M. Friedson, Applica's chairman of the
Board and CEO, said in the quarter statement: "Although
I am encouraged with the improvements in our
operating margins, I am disappointed with the
softer sales we experienced across most divisions
during the quarter. Despite the difficult economic
environment, we remain committed to our focus
on balance sheet management."
For the fourth quarter, the company said reduced
contract manufacturing orders and continued weakness
in Latin America will negatively affect sales.
Harry D. Schulman, Applica's president and COO,
echoed NACCO's concerns, stating, "Sales
will also be impacted by congestion resulting
from the West Coast port lock-out, as well as
increased credit risk of certain of our customers.
We anticipate sales for the fourth quarter will
be similar to last year."
Patient
Predictions
While economists and appliance makers seem
to be leaning toward "cautiously optimistic" outlooks
for 2003, several question marks continue to
make the U.S. economy fairly vulnerable: Will
businesses finally take the plunge and start
investing? Will the consumer run out of spending
steam? Will U.S. President Bush instate a successful
stimulus package? And, finally, what happens
if the U.S. goes to war with Iraq?
As is always the case, economic predictions
are nothing but educated guesses that, more often
than not, completely miss indications of a major
disaster. As many analysts have speculated this
past year, patience and optimism are almost required
in order to avoid a self-fulfilling prophecy.
With that in mind, here's the good news: the
American economy did hold on in 2002 and doesn't
show any immediate signs of loosening its grip.
It seems fairly safe to expect a full recovery
in 2003, but expect it to be fairly slow. |
