Weekly Editorial

Stop Trying To Talk Yourself Into A Recession

Written By Rob Kirkbride, Write Office • December 12, 2022

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We are an industry of nervous Nellies. When even the slightest hint of economic problems crop up, we think that the sky is falling and start making rash decisions.

I get it. The economy is definitely giving mixed messages, but when you break things down to what really matters for the industry — namely the job market, corporate profitability and commercial real estate — things are looking really good for 2023.

Many companies are finishing up the year with record or near-record sales and a lot are dialing back expectations for 2023, which is prudent. But I’m here to tell you: The office furniture industry might slow down a bit in 2023, but if we don’t experience any sudden shocks, 2023 is going to be a very, very solid year.

Here’s why:

Hiring and the jobs market remains surprisingly strong, though it is tightening slightly, which is good news for employers still looking for the right talent. Hiring new employees means adding new/more office furniture.

From October 2021 to October 2022, nonfarm payroll employment increased in 46 states and was essentially unchanged in 4 states and the District of Columbia. The largest percentage increase occurred in Texas (5.4 percent), followed by Florida (5.0 percent) and Oregon (4.5 percent). The largest job increases occurred in California (695,500), Texas (694,200), and Florida (457,400).

The Great Resignation seems to be cooling a bit, but job churn remains historically high. The U.S. Bureau of Labor Statistics reported that beginning in March 2021 and carrying over into 2022, the rate of job quitting in the U.S. reached highs not seen since the bureau began measuring job openings and turnover in December 2000. Forbes reported that by the end of 2021, 47.8 million people left their jobs for other positions as compared to 37.7 million people who quit in 2017.

Though the trend began in 2021, has continued into 2022, and is projected to continue into 2023, the rate of job quitting appears to be slowing. The number of quits has declined month over month for the past six months. Nevertheless, the number of workers leaving their jobs – whether due to residual effects of the pandemic, taking a better job or position, choosing an opportunity for remote work or a hybrid schedule, higher pay and better benefits, or just seeking a different life experience – is still very high historically speaking. Thus, companies are finding themselves competing for the best and brightest talent and are using creative ways to attract and retain a high-performing workforce — including remodeling offices and creating better workplace experiences — good news for the office furniture industry.

Corporate Earnings
Corporate profits in the nonfinancial sector hit a record high of $2.08 trillion in the third quarter even as 40-year-high inflation continues to squeeze American consumers. Profits adjusted for inventories and capital consumption rose $6.1 billion from the second to third fiscal quarters, the Commerce Department reported recently, continuing a red-hot recovery from the flash recession caused by pandemic shutdowns.

Following a two-quarter dip in 2020, quarterly profits have surged by more than 80 percent over the last two years, from around $1.2 trillion to more than $2 trillion, adding weight to arguments that the private sector is driving inflation by exploiting consumer expectations to keep prices elevated.

Regardless of the why, corporate profits remain high, which is good news for the office furniture industry that relies on corporate profitability to drive sales.

Commercial Real Estate
Commercial real estate continues to suffer, especially in major metro areas. Since January, shares of SL Green and Vornado (owners of the Merchandise Mart), two publicly traded REITs that are among New York’s biggest office owners, have fallen by half. Fresh signs of strain came last week. Blackstone, the private equity firm, told investors it would restrict redemptions in a $125 billion commercial real estate fund.

According to J.P. Morgan’s 2023 Real Estate Outlook, there may be challenges ahead. Retail is at a crossroads, and the future of office space is unclear. Plus, supply chain issues persist, and inflation remains near 40-year highs, prompting the Fed to steadily increase interest rates. But there are a few bright spots in the commercial real estate forecast. Multifamily properties continue to perform well, and the hot streak for industrial properties remains.

Overall Outlook for 2023
That’s why I remain guardedly bullish about the office furniture economy for 2023. Corporate profitability remains quite strong and the jobs market is steady, if not growing. Commercial real estate remains a serious problem, especially for major metro areas and communities where the technology sector dominates.

Macroeconomic factors are moving in the industry’s favor as well. The worst of the pandemic appears behind us. China is slowly moving to open its economy as it relaxes its Zero Covid policy. And while the war in Ukraine grinds on, the hope for peace remains. If the war ends sooner than expected or if China’s move toward a more open economy is easier than thought, the economy could quickly heat up again.

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