U.S. floor coverings manufacturer sales continued their second-half slowdown, according to the Catalina Research quarterly report. In the fourth quarter of 2016, dollar sales increased by only an estimated 2.2 percent and square foot sales by 1.5 percent. These relatively weak gains reflect sluggish housing demand in the third quarter of 2016.
For all of 2016, U.S. floor coverings dollar sales are estimated to have increased by 3.8 percent to $24.6 billion and square feet sales could have risen by 3.2 percent to $21.8 billion. Gains were sharper in the first half of 2016 due to stronger housing demand in the first quarter of the year. However, as housing demand moderated, floor covering sales growth declined from the 6.6 percent gain in dollars and the 3.8 percent increase in square feet experienced in 2015. In 2016, dollar sales gains were also held down by relatively weak price increases as material costs remained tame through most of the year, and competition increased from competitively priced import.
The slowdown in industry growth in 2016 primarily reflects moderating gains in the builder market. Housing starts is estimated to have increased by only 2.3 percent in the second half of 2016, down from a 6.9 percent gain in the first half of the year and 10.8 percent rise of all of 2015. Despite this moderation, builder purchases continue to lead industry growth.
Relatively sluggish consumer purchases also remain a drag on floor coverings market growth since consumer floor coverings spending increased by only about 3.0% in 2016. Slower growing existing home sales held down consumer purchases. This is important since existing home sales is the key driver of consumer floor coverings purchases. Tight mortgage standards, high levels of college debt by the first time home buying population cohort, and rising home prices held down existing home sales.
Meanwhile, commercial market selling opportunities have outpaced overall industry growth in 2016. Sales opportunities have increased at the sharpest rate in the hospitality, office, and retail markets, especially in the Main Street commercial market. Sales gains benefited from the nearly 10.0% increase in private nonresidential building construction spending over the past year. However, sluggish government building construction spending dampened commercial market growth.
The growth in the builder and commercial markets accelerated the shift to hard surface flooring since the residential replacement market remains dominated by soft surface flooring. The above average gains of ceramic tile and resilient flooring also contributed to this trend since these industry sectors rely the most heavily on commercial market sales. Hard surface flooring sales also received a boost from the surge in luxury vinyl tile (LVT), and wood plastic composite (WPC) and other hybrid product sales. These trends resulted in hard surface flooring square foot sales increasing by an estimated 8.4 percent in 2016, while soft surface flooring square foot sales declined by 1.1 percent.