35-251-XIE

Manufacturing, Construction and Energy Division

THE INCREDIBLE RISE IN THE FURNITURE AND FIXTURE INDUSTRIES

Étienne Saint-Pierre

INTRODUCTION

After having experienced very lean years at the beginning of the decade, the Furniture and Fixture Industries have been experiencing an exceptional period in the past few years due, in part, to exports. The growth rate of the gross domestic product in constant dollars between 1992 and 1997 was much greater in the Furniture and Fixture Industries than in manufacturing industries as a whole (Chart 1 – Gross Domestic Production at Factor Cost (in constant 1992 dollars)). The most outstanding factor for industries in this major group since the beginning of the decade has been, without doubt, the Free Trade Agreement with the United States. In fact, since January 1, 1993, customs tariffs between Canada and the United States have been eliminated. To meet increased competition, even though in an expanded market, the companies invested in more modern equipment and have developed new products to profit from competitive advantages and increase their productivity. Therefore, there has been a restructuring in the Furniture and Fixture Industries. There are fewer establishments than at the beginning of the decade, but those that remained have grown. The value of shipments outside Canada has now surpassed the value of domestic shipments. Those establishments that did not restructure to move towards exporting or to increase their efficiency have known more difficult times.

A series of economic factors have also permitted establishments in this major group to benefit from an environment that favours expansion. Low interest rates and strong demand in North America, and the weak Canadian dollar compared to the U.S. dollar, help to explain the exceptional results these industries have had during the last few years.

Results regarding manufacturing shipments, drawn from the Annual Survey of Manufactures, trade and capital expenditures confirm the extraordinary growth that these industries are currently experiencing.

Furniture and Fixture Industries

In 1996, there were 1,406 establishments in this major group which employed 49,300 people. These industries employed 3% of persons working in Canada’s manufacturing sector. Although there are furniture manufacturers across the country, the majority of this sector’s activity is in Quebec and Ontario. In fact, 82% of manufacturing shipments originate in these two provinces and 80% of the employees work there. Chart 2 (Percentage of the Furniture and Fixture Industries in the Manufacturing Sector, 1996) illustrates the importance of this major group in the Canadian manufacturing sector. Compared to other manufacturing sectors, this one is rather small. In fact, of the 22 major groups, this one ranks 17th in terms of manufacturing shipments.

Of the industrial groups that constitute this major group, Household Furniture Industries dominated the market in 1996, with 36% of manufacturing shipments of the major group. The Office Furniture Industries were next with 27% of the market.

SHIPMENTS ARE INCREASING

For the fourth consecutive year, manufacturing shipments for the Furniture and Fixture Industries were on the rise in 1996. They totalled $5.6 billion, which means 11.7% more than the previous year. Contrary to 1995, this increase is strongly due to a demand for these industries’ products rather than due to price effect. In constant dollars, manufacturing shipments rose by 10.6% in 1996.

When we compare this increase to that of the manufacturing sector as a whole, it is evident that this major group’s performance in 1996 was excellent. The increase in manufacturing shipments in the manufacturing sector as a whole was 2.6%, which is much lower than the growth rate of shipments of furniture and fixtures. Of the manufacturing sectors, only refined petroleum products and coal industries had a higher growth rate.

As shown in Chart 3 (Shipments, Manufacturing Sector and Furniture and Fixture Industries), the Furniture and Fixture Industries had an even better year in 1997. In fact, data from the Monthly Survey of Manufacturing shows an increase in manufacturing shipments of approximately 17%(1). This is the major group that has known the greatest growth in 1997. These results explain the fact that, at 87.6% in 1997, the industrial capacity utilization rate reached its highest level since 1973(2). After having been severely affected by the recession at the beginning of the decade, the Furniture and Fixture Industries surpassed the growth of all manufacturing industries for the period 1990 to 1997 due to the exceptional years in 1996 and 1997.

The intensity of growth varies at the industrial group level

At the level of industrial groups, all increased the value of their manufacturing shipments in 1996. Shipments in Office Furniture Industries rose by 17.4%. The Monthly Survey of Manufacturing shows that the growth of shipments for these same manufacturers was spectacular in 1997. In fact, with a 29% increase in manufacturing shipments in 1997, the value of office furniture shipments doubled in four years. As for other industrial groups, the growth of manufacturing shipments is between 9% and 12% for 1996 (Table 1 – Industry Groups, Furniture and Fixture Industries, 1992 – 1996), with the exception of the Bed springs and Mattress Industries whose increase in the value of shipments was approximately 5% in 1996. This group had also been least affected by the recession in the Furniture and Fixture Industries.

The large establishments increased their market share

One of the aspects of structural changes in the Furniture and Fixture Industries is reflected in the increase in market share of large establishments. It seems that they have more easily adapted to the new trading environment that has developed as a result of the Free Trade Agreement. As for the small establishments, some of them could not adapt and had to shut down whereas others grew to satisfy increased demand (the number of establishments with fewer than 100 employees decreased from 1,819 to 1,298 between 1990 and 1996).

While the market share of medium-sized establishments remained relatively constant since 1990, that of larger establishments (500 employees and more) rose from 11% to 22%. This increase occurred to the detriment of smaller establishments (fewer than 100 employees) whose share of manufacturing shipments of furniture and fixtures dropped from 55% to 44% (Chart 4 – Market Share by Size of Establishment (by number of employees)). With additional resources for research and the development of new products, for investment in improved machinery, to attract the best workers and to get information, it is understandable that the large establishments had a greater impact on market globalisation than the smaller establishments.

Exports of Canadian furniture manufacturers increase at a steady pace (see also International Trade)

The elimination of customs tariffs between Canada and the United States as a result of the Free Trade Agreement between the two countries brought about a marked increase in shipments to the United States. Export levels in the Furniture and Fixture Industries reached $4.5 billion in 1997(3). The average growth rate of the value of export shipments was greater than 24% between 1993 and 1997. As a matter of fact, since 1992, the growth rate of exports in these industries has been in the double digits.

As for imports, they were approximately $1.8 billion in 1997, which means an increase of 21.7% compared to 1996(4). In spite of this increase, the level of imports was still 10% lower than in 1993.

For a better understanding of the inputs and outputs of furniture and fixtures, it is useful to use the relative balance of shipments. This is expressed as a percentage of the trade surplus or deficit of furniture and fixtures compared to the sum of exports and imports of these products. From the –5% that it was in 1992, the relative balance was 43% in 1997, which illustrates the importance of foreign markets to sell the products of Canadian furniture manufacturers. One can see from these results that Canadian furniture manufacturers have become very competitive both internationally and domestically.

Investments: a key factor in growth

To succeed in this new trade environment, Furniture and Fixture Industries had to invest in capital assets to become more efficient in the production of goods. The low interest rates that Canada has had these past years have facilitated these investments. In 1997, capital expenditures were $174.1 million, an increase of more than 40% compared to the $123.8 million spent in 1996(5). The average rate of growth of capital expenditures between 1993 and 1997 was slightly higher than 22%. Because of the development of new products and better production cost control, these expenditures allow the Furniture and Fixtures Inductries to be more competitive in international markets.

Workers’ productivity

A direct consequence of the increase in investments is the increase in productivity of production workers(6). As shown in Chart 5 (Productivity of Production Workers in Constant Dollars (1992)), apart from a slight decrease in 1993, the productivity of production workers has not stopped growing since the beginning of this decade. In fact, productivity has evolved at the same rate as salaries, which means that labour costs (measured as the ratio of the productivity of these workers to the salary of these same workers) has remained stable. In fact, labour costs have even decreased slightly. For every dollar paid in salary in 1996, every worker produced $2.73 of value added, an increase from $2.67 in 1991. The Furniture and Fixture Industries controlled their labour costs in 1996 even more than the manufacturing sector as a whole. Whereas for every dollar paid in salary the value added was similar in 1995 and 1996 in the furniture industries, the increase in salaries was not offset by a similar increase in value added in the manufacturing sector as a whole in 1996. The value added per dollar paid in salary decreased by 5% in the manufacturing sector as a whole in 1996.

Controlling labour costs is important to ensure the competitiveness of the Furniture and Fixture Industries. The high level of investment in 1997 and the intentions for 1998, which foresee an increase similar to that in 1997, lead us to believe that the productivity of workers will continue to increase and the cost of labour will continue to decrease.

Conclusion

As a result of the Free Trade Agreement and the globalisation of markets, the Furniture and Fixture Industries have been able to expand their markets. To do this, and to remain competitive against foreign competition, large sums have had to be invested to obtain better equipment and to create economies of scale. Large establishments adapted best. The opening of borders and the sums invested, combined with a very favourable economic situation for the Furniture and Fixture Industries have made for spectacular growth in this industry.

Major Group 26 – Furniture and Fixture Industries:

Miscellaneous goods such as safety cabinets and frames for mirrors and photographs (other than plastic) or curtain rods are part of this major group under the industrial group called Other Furniture and Fixture Industries (SIC 2699).

Relative Balance:  Shown as a percentage of the trade surplus or deficit for furniture and fixture products in relation to the sum of their exports and imports.

References

(1) Monthly Survey of Manufacturing, March 1998, Catalogue no. 31-001-XPB. The 1997 figures on manufacturing shipments in the text and in the charts were determined using the Monthly Survey of Manufacturing.

(2) Statistics Canada, Industrial Capacity Utilization Rates in Canada, Catalogue no. 31-003

(3) Statistics Canada, International Trade Division.

(4) Industry Canada, based on Statistics Canada data.

(5) Statistics Canada, Private and Public Investment in Canada, Catalogue 61-205.

(6) The measure of productivity is defined here as the quotient of the census value added produced by production workers and the number of production workers.

Sources

Statistics Canada. Industrial Capacity Utilization Rates. Catalogue no. 31-003.

Statistics Canada. Monthly Survey of Manufacturing. March 1998. Catalogue No. 31-001-XPB.

Statistics Canada. Private and Public Investment in Canada. Catalogue no. 61-205.

This article was written by Étienne Saint-Pierre.  Étienne is a Statistics Canada economist of the Manufacturing, Construction and Energy Division. 

Further information on Canadian manufacturing can be found in the publications Manufacturing Industries of Canada: National and Provincial Areas (Catalogue 31-203-XPB), available annually for $68 per issue in Canada and for $68 U.S. outside Canada, and Products Shipped by Canadian Manufacturers (Catalogue 31-211-XPB), available annually for $67 per issue in Canada and for $67 U.S. outside Canada. Order this publication and other Statistics Canada publications by telephone, dial 1-800-267-6677, by fax: 1-800-889-9734, or by Internet.

For more information about manufacturing data or time-series, call the Disclosure and Dissemination Unit, Manufacturing, Construction and Energy Division at (613) 951-9497 or by Internet: manufact@statcan.gc.ca.   For information from International Trade Division telephone 1-800-294-5583 or by Internet: trade@statcan.gc.ca.