Many parts of hardwood land in the eastern half of the country are noted for hardwood flooring. Strip flooring production numbers go back almost 100 years (display 1). A cursory examination of these annual numbers demonstrates an interesting cause and affect relationship with major historic events and factors that impact consumer buying patterns. During the past century the hardwood flooring industry has plummeted to lows at the ends of three cycles, only to rise again as consumers have turned to hardwood as a desirable form of flooring. As we examine the impact of significant events on hardwood flooring cycles, we find ourselves wondering whether we are again facing one of these cycle making events. You can decide for yourself, but first let’s examine flooring’s history and what is facing us today.

Hardwood & Flooring History

            Historically, the demand for hardwood flooring grew from 34 million bd.ft. in 1907 to 568 million in 1928. Then the stock market crashed, sending hardwood flooring crashing along with it to 108 million bd.ft. just six years later in 1934. This serves as an excellent example of a hardwood flooring market rebounded substantially to 544 million bd.ft. by 1941, only to face a second calamity in World War II. It again bottomed at 186 million bd.ft. only three years later in 1944.

            After WWII, demand soared to its historic peak of 1.207 billion bd.ft. by 1955. Hardwood flooring was common in houses as the country recovered from the WWII devastation. If we had been building houses at that time similar in size to so many houses today, no telling what the peak might have been. Demand held relatively strong at lower but still solid levels through the mid 1960s.

            Along came the third event impacting flooring. This time it was a less dramatic but equally devastating condition that molded the market. People were able to put carpet that might have a lifetime of five or ten years on 30 year FHA mortgages. Since wall-to-wall carpeting was less expensive than hardwood flooring, it quickly became a fashion trend and the floor covering of choice for many. Hardwood flooring demand dropped to 320 million bd.ft. by 1971 and then plunged to a low of 99 million bd.ft. by 1975. Just as hardwood flooring was struggling for survival, the deep recession of the early 1980s plunged the demand for hardwood flooring to a modern day low of 75 million bd.ft. in 1982.

            Thus, the fourth hardwood flooring cycle started, growing annually almost without exception until today’s 633 million bd.ft. in 2003 (a modern high). Notice that the increase in 2003 (up from 627 million bd.ft. in 2002) was modest compared to typical increases in most of the last 20 years. Are we seeing the early signs of cooling in the growth of domestically manufactured hardwood flooring? Note the term domestically manufactured. Let’s examine briefly the factors affecting today’s market.

Today’s Hardwood Flooring

            First, during 2003 our nation’s hardwood forests experienced one of the wettest periods in modern history. Heavy and frequent rains came in waves, with a hurricane in the Virginia/North Carolina region to wash it all down last September. Logging was affected, with log decks often being at desperate levels. Many mills could not run at full speeds and had to take down periods. In the face of these conditions, a modest growth in domestically manufactured flooring might be taken as a positive sign that growth will resume when normal precipitation patterns returned. Late in 2003 and in early 2004 we have seen a return of what might be considered more normal weather conditions. Dryer conditions have been common across most of the South, sometimes causing light draught conditions. The Northern tier of states experienced heavy rains through this spring. Will hardwood production, including flooring, return to a more solid growth pattern?

            A second major factor in the hardwood flooring market is the housing market.

Ask any realtor. Few if any housing markets can match that of the past few years. Interest rates have been bargains, driving people who formerly could not afford to buy a house into the housing market and inspiring others to upgrade to larger houses. Many people realized their housing dreams over the past few years in spite of the weak economy. In fact, the low cost of money, in particular its impact on housing, is the main thing that kept our country out of a more serious recession after the terror disaster of 9-11. Thus, some of the recent drive behind the demand for hardwood flooring has been an exceptionally strong housing market, which may not continue when interest rates go back up, as most people expect them to.

            A third factor is the movement of hardwood furniture manufacturing off-shore since the late 1990s. The cost of labor in the Pacific Rim is a fraction of that in the U.S. In addition, the construction of modern, more efficient furniture plants and much lower regulatory and environmental costs have made it less expensive for furniture companies to import wood into countries like China, manufacture furniture over there in newer plants, and ship it back into the U.S. market. The economic boom in China has recently limited the supply of ships, causing the cost of transportation to go higher. What logistical impact this may have in the future is not certain, but it is serving to level the playing field at least a little. In the last several years, the movement of furniture manufacturing has caused many hardwood mills to shut down, often permanently. Forest products plant auctions have been very common. While the hardwood industry has rebounded recently for those mills that survived, a future tightening of the money supply could change this climate because it might impact housing significantly. Nobody can expect this housing bubble to continue indefinitely.

            During the more difficult hardwood markets of the last few years, the demand for low-grade material was the one bright spot. The pallet industry had to fight with flooring and rail ties, as well as other buyers of low-grade, for the limited supply. Tough weather and a difficult market combined to limit any low-grade production growth, and prices went much higher. By the late spring of 2004, low-grade hardwood prices for pallet lumber had hit historic highs. The pressure is better as we head for the summer months, but even in areas in the South where supplies are better prices have been holding steady. What impact will imported hardwood furniture have in the future on the sawmill industry, and hence the pallet industry, only time will tell for sure.

            Keep in mind that a major portion of the supply of low-grade pallet hardwood is what economists call a split product. Generally, you don’t cut down trees for just the low-grade material. Flooring, paneling, furniture and other higher priced items are the driving factors. While all products help cover the costs and contribute to the industry financial picture, the lower valued products are not the drivers. Low-grade hardwoods are important to sawmills, but the higher grades generate the majority of the income for the larger grade-sawmills.

            Fourth, there has been a significant growth in hardwood flooring imports in the last few years, particularly in 2003. In the two years from 2001 until 2003, solid strip flooring imports increased from about 2 million sq. meters to over 7-1/3 million sq. meters, a very large increase by any measure. Was most of this increase due to a shortage of domestic material or did it come from the increases other countries have made in their hardwood flooring manufacturing capacities? Two things we do know. The increase in imported hardwood flooring is significant, particularly from a percentage perspective, and more international flooring production and exports to the U.S. is consistent with what has happened in the hardwood furniture industry. Note the significant increases in imports from China, Canada, and Brazil. Some other countries (Italy, Thailand, and Taiwan) also showed very large percentage increases.

            One big question is whether or not we are seeing the start of a new trend — a major increase in imported hardwood flooring. If so, the numbers and circumstances might suggest that we could be coming to the end of our fourth growth trend for domestic hardwood flooring in the last hundred years. If that were to happen, it could reduce some of the pressure that flooring has put on the low-grade supplies on which the pallet industry depends. It is interesting that the National Wood Flooring Association (NWFA) executive director Ed Korczak believes that hardwood floors now represent over 10% of the dollars in U.S. flooring sales. One could argue that growth potential remains since hardwood flooring is still a minority player in the total flooring picture.

            There are a few trends in hardwood flooring worth mentioning here. Recently factory finished hardwood flooring and engineered flooring have become much more common. No longer does a hardwood floor mean having to sand and apply numerous coats of finish. One can install the flooring and walk away from the job.

            George Barrett, publisher of Hardwood Review Weekly, reported that at the recent National Wood Flooring Expo he counted 98 different species of imported solid strip flooring products. Bamboo flooring has been very prominent for several years; it is now offered for either horizontal or vertical installation. The list of species he published in the May 21 Hardwood Review contained many exotic species, most not commonly known to most people. It certainly appears that tomorrow’s flooring world may contain a wide variety of products, species, and color that are vastly different from the more limited domestic species and stains.

            It appears that tomorrow’s hardwood flooring world may be dramatically different from that of the past. What does this mean to the pallet industry? If it means a shift to imported products, that could ease the pressure on domestic low-grade hardwood supplies. If it means a more versatile product offering that increases the percentage of the flooring market that belongs to hardwoods, it could spur additional growth in domestic hardwood flooring. You be the judge.

            Information for this article was sourced from: Hardwood Review (www.hardwoodreview.com), Pallet Profile Weekly (www.palletprofile.com), National Wood Flooring Association (www.woodfloors.org), and The National Oak Flooring Manufacturers Association (www.nofma.org).