Association leaders and analysts weigh in on the pros and cons of a Democrat-controlled Whitehouse and Congress
HIGH POINT — While acknowledging it’s a bit of a guessing game this early on, furniture industry association leaders and industry analysts see a fair amount of positives for the furniture industry under the new Joe Biden administration.
In interviews with Home News Now, they pointed to the possibility for new stimulus that could drive more business, to the potential calming of the trade tensions and a more nuanced approach to tariffs and trade concerns than the one witnessed under the former president. And they see all the economic benefits the industry stands to gain from the Biden administration’s emphasis and greater focus on getting the Covid-19 pandemic under control.
But they also worry — about whether the administration is paying any attention to the incredible congestion at our nation’s ports and this industry’s (and other’s) ongoing supply chain challenges and related rising prices. They wonder if the Trump tax cuts and corporate tax rate will hold, and some see danger in the extension of unemployment benefits while the furniture industry struggles to find enough retail and factory workers.
Whether the positives will outweigh the negatives remains to be seen, but most sources interviewed for this story had no trouble identifying both the moves that seem promising and others (or the threat of others) that might just drag the economy down and the industry with it.
The impact of the Biden administration has been top of mind for the Home Furnishings Assn. and something it has been discussing with its government relations action team ever since the election, said Mark Schumacher, CEO of the nation’s largest organization dedicated to furniture retailers. And right now,
HFA sees mostly encouraging signs in a number of areas.
Starting with trade
One of the key concerns over the past couple of months has been the U.S. Trade Representative’s Section 301 investigation into Vietnam, which will determine whether the U.S. imposes tariffs on imports from the country. Investigators have looked into the alleged use of illegal timber and potential currency manipulation.
HFA was among the organizations that recently testified before USTR, and what it really wanted, besides some proof of the allegations, Schumacher said, was essentially a sense that nothing was going to be rushed through without careful consideration.
“Really our whole point was: Listen, don’t just install some draconian, across-the-board tariffs that are going to be damaging to the economy, to the customer for pricing. We just really came at it from the standpoint of wanting calm,” he said.
“That was a real concern at the end of the Trump administration, but now, USTR has finished their work and are handing it to the Biden administration. So we feel good about the fact that this will, in our mind, be looked at carefully and that there won’t be knee-jerk tariffs put in place. That’s a different approach we feel the Biden administration provides us.”
Business-friendly Cabinet picks
Schumacher said HFA also sees reason to be optimistic over some of Biden’s Cabinet appointees and in new committee leaders taking over now that the Democrats have won control of the Senate.
This week, the Senate confirmed Janet Yellen — a former Federal Reserve Chairwoman — for Treasury Secretary, which “gives us stability there that, I think, all of us need and want, especially when it comes to consumer confidence and building that confidence,” Schumacher said.
Biden also picked Rhode Island Gov. Gina Raimondo for Commerce Secretary, “and she’s seen as a very business-friendly Democrat,” he added. And in the Senate, Ben Cardin, the Maryland Democrat now chairing the Committee on Small Business and Entrepreneurship, “has always had a very much favorable approach to small business.
“We think that’s a tremendous sign,” Schumacher said. “We just don’t see any dramatic negative changes there. In fact, we see there being a real conversation, a real advocacy for smaller businesses.” HFA, he noted, represents everyone from mom and pop stores to Top 100 retailers, but the vast majority of its members are small to midsize.
And then there’s the conversation around additional stimulus. Schumacher said we’ll have to see how it plays out, but, in general, the willingness to push for more stimulus stands to be a positive to the furniture industry.
“Let’s face it, when money was put in the hands of our consumers (last spring), when everything reopened and that stimulus came through, it meant a lot of buying power and it meant a lot of good solid business for our industry,” he said. “So any additional monies along those lines could be very positive for the business we’re seeing out there that’s still strong even with all the supply issues.”
Asked if he sees any negatives that could come from the administration change, Schumacher said a number of HFA’s members want to see federal standards for liability protection. But since that was predominantly a Republican cause, it may be set aside, and that will come as a disappointment to some HFA members, he said, even though many states have moved forward with their own liability protections.
What about taxes?
“There’s also the question about where corporate taxes may go,” he said. “We don’t really have a specific sign from the Biden administration as to what direction they’re going to take. Although, there is a sense, and what we’re hearing, is that there probably won’t be a widespread rollback of the Trump tax cuts and the corporate tax rate may (hold).”
Based on the flurry of executive orders Biden signed during his first few days as president, “the furniture industry, and independent furniture sales reps, at least on paper, should benefit from his tenure in office,” said Ray Allegrezza, executive director of the International Home Furnishings Assn.
Fighting back against pandemic out of the gate
“Clearly, the pandemic has stalled our economy, put people out of work, shuttered many furniture stores and severely disrupted our industry’s already fragile supply chain. Considering that during his first two days in office, Biden signed 10 executive orders specifically written to combat the Covid-19 pandemic, I have to see this as steps in the right direction.”
Allegrezza said shutting the door on Covid means businesses can reopen, IHFRA reps can get back on the road and once again be welcomed into the stores they serve, “and over time, the supply chain will hopefully get back on track, eliminating the product shortages we are now facing.”
But pandemic actions aside, Allegrezza pointed to other moves that may not play to the industry’s favor long-term, or at least not to all segments.
He noted, for instance, Biden signed orders designed to boost sales of products made in America. His “Buy American” plan calls for a four-year, $400 billion hike in government purchases of domestically made goods and services.
While some applaud the plan, Allegrezza noted critics fear it will force the government to pay more, and it will be paying more with taxpayer dollars, widening the deficit further.
“While tighter rules concerning the government buying domestically-made goods may be a leg up for some smaller U.S. businesses, the order could also impede other small businesses that have historically sourced components and goods from outside the U.S. and might now find themselves trying to source from a domestic supply chain that is currently struggling,” he told Home News Now.
Pros and cons of a higher minimum wage
Biden also wants the minimum wage bumped up to $15 an hour. He’s already done so via executive order for federal workers. But here, too, there are opposing views and it’s unclear whether the industry, the economy and workers stand to benefit from this.
“Supporters say this will lift many Americans out of poverty while detractors point to a recent study by the Congressional Budget Office that determined as many as 3.7 million workers may actually lose their jobs as a result of the bump in the minimum wage,” Allegrezza said.
What about taxes (again)?
“Biden is also calling for a $15 billion grant program designed to provide relief to the country’s hardest-hit businesses as well as making more than $170 billion of funding available for small business investing and lending,” and paid leave benefits for all employees through the end of September.
Sounds good on paper, but “the devil is always in the details and it remains to be seen how effective these moves will be as they are rolled out,” Allegrezza said.
“And, at the end of the day, there really is no free lunch. Someone, usually the taxpayer, ends up paying for that meal.”
Stimulus equals “found money”
Like Allegrezza, industry analyst Jerry Epperson sees room for optimism in the increased focus on conquering the pandemic and like Schumacher, he thinks the next round of stimulus could work some more magic.
“It’s found money they didn’t expect to have,” said the managing director of Richmond, Va.-based Mann, Armistead & Epperson. “In the trade, we call that discretionary income because it’s money they can spend that isn’t already pre-spent.
“And it’s coming at a time when a lot of people still aren’t comfortable going into restaurants. They’re still not comfortable getting on airplanes or going too far from home. So I think we’re going to get a big kick from that just like last time.”
Biden’s move to extend the moratorium on evictions is also good news for an industry focused on the home, and his efforts to “open up the borders” will mean more residents in need of more home furnishings.
Unemployment benefits vs. industry desperate to employ
But Epperson sees plenty of warning signs, too. He sees as problematic the extension of unemployment benefits and Biden’s directive to the Labor Department to clarify that Americans fearing Covid in the workplace should be able to refuse that work and receive jobless benefits.
“So basically what he’s saying is anybody who doesn’t want to work can get unemployment; all you have to say is you’re scared of Covid,” Epperson said.
“We’re still having a hard time finding workers for our furniture factories. We’re having a hard time getting people to work in furniture stores. It’s terrible, so I think that’s a hindrance.”
Epperson also is concerned the new administration is not paying attention to inflation, to what’s happening at our country’s congested ports and how this can stymie economic growth.
Is the administration paying attention to price increases?
“I’m hearing more and more complaints … nobody is working on the ports situation,” he said. “We’ve got ships that can’t get in. When they do get in, they can’t get their containers unloaded because there’s not enough space on the docks because the longshoremen are taking their own sweet time moving it. And even then, we can’t find trucks and railcars to move it.”
Epperson noted the unprecedented rise in container pricing, which jumped from about $4,200 six months ago to $8,000 today on their way to $10,000 in March, and that’s if you can secure a container at all, not to mention space on the freight ship. (At least one top retailers, he said, has called the container pricing blackmail and refused to pay; another referred to them as “almost criminal rates” in this HNN report.
“If we can’t get the containers, we’re not going to get our shipment and that whole side of the business is going to continue to deteriorate,” Epperson said. “The smarties people in shipping said all of this would be resolved by the end of the Chinese New Year.” But Epperson read recently in one of his subscription newsletters, “we’ll be lucky if this is over by September.”
What exactly does this have to do with the new administration? It’s the silence that concerns Epperson. He acknowledges that this is a mess Biden inherited, “but I don’t see that it’s a priority for him,” he said, adding the focus of early actions has been on environmental and other issues.
In the meantime, transportation costs are skyrocketing. Labor and raw material costs keep rising. And consumer prices are up everywhere, not just in furniture.
And with the government sending out these checks to consumers and everybody having more money to spend, it’s not a matter of inflation (coming down the road). Inflation is happening. And the derivative of growing inflation is higher interest rates.”
That includes higher mortgage rates. “And that’s sad because we’re about to be in the middle of a housing boom.”
None on this, he suggested, would bode well for the economy or the furniture industry.
Here are a few more quick takes from:
Andy Counts, CEO, American Home Furnishings Alliance
“Elections, of course, have consequences. But the tight margins in both the House and Senate should temper some of the less business-friendly proposals. It remains unclear how the new administration will handle trade issues, but we can expect a more measured approach. This should at least allow for better planning and forecasting. Selection of leadership at the various agencies will determine regulatory activity and we will work to make sure the industry has a seat at the table. If you are not at the table, you will end up on the menu.”
Bo Stump, partner, Stump & Co., Charlotte, N.C.
“In the short term, we expect the status quo. The big question right now is how will the new administration handle these Vietnam trade issues? We’re cautiously optimistic there will be a resolution there. We do anticipate tensions to cool with China slightly, at least in rhetoric, but not enough to change the momentum already in place. One trend we continue to see is an interest in North American upholstery, whether in the US or Mexico – the Biden administration should only help that trend given the aforementioned trade issues as well as the administration’s emphasis on domestic production (‘Build Back Better’).”