Pulling Rug Out From Recession

Michael Abrahams smiled as he pointed out the chrome curves of his new leather chair, the latest addition to the Brooklyn, N.Y., apartment he and his wife bought in January.

“We’re doing our little part for the economy,” Abrahams said, describing recent purchases from IKEA, the world’s largest retailer of home furnishings, and Rico, a local store that specializes in lamps, chairs and sofas.

The example of the 33-year-old public relations executive and his living room shows how the U.S. benefits from a strong housing market as the economy emerges from recession.

After low mortgage rates led to record sales of 6.21 million houses and 738,000 previously owned condominiums last year, Americans are busy spending on furniture, fixtures and decorative items to fill them. And that is helping to fuel the next phase of recovery.

“There is a clear acceleration in purchases of these items,” said Dan Seto, senior economist at Sumitomo Life Investment Co. in New York. “Things are really beginning to get hopping.”

The effect is evident from factory to showroom to living room. Production of appliances, furniture and carpeting rose at a 6.3% annual rate in the first quarter, the first quarterly increase in at least a year, the Federal Reserve said.

Leggett & Platt Inc., the world’s largest maker of springs, wires and fabric for furniture, said earlier this month that first-quarter profit rose 22% andsecond-quarter profit would be better than forecast.

“We’re well-positioned to take advantage of a sustained recovery,” said Felix Wright, the company’s president and chief executive.

To keep up with orders, Hooker Furniture Inc. of Martinsville, Va., is running overtime at two factories.

“Demand has certainly picked up,” said Larry Ryder, executive vice president of the maker of home entertainment centers. “We look forward to a pretty good year.”

Sales at home furnishings stores rose at a 10.9% annual pace during the first quarter, up from a 10.1% rate in the last three months of 2001 and a 2.5% rate of decline in the quarter before that, the Commerce Department said.

That has bolstered the outlook for some companies. Williams-Sonoma Inc., owner of the Pottery Barn and Williams-Sonoma chains, this month raised earnings estimates for the quarter and the year. Bed Bath & Beyond Inc., the largest U.S. household goods retailer, also raised its earnings forecasts this month.

Home improvement stores also are seeing sales pick up.

“The housing industry has been the one bright spot in the U.S. economy,” said James Hopwood, chief financial officer at Wickes Inc. “Combining low interest rates, historical lows in the inventory of unsold homes and a reasonable demand for housing over the next several years, Wickes should benefit.”

Sales of new homes fell last month to an annual rate of 878,000 from 906,000 in February, the Commerce Department said last week. And the National Assn. of Realtors reported that sales of previously owned homes fell to an annual rate of 5.4 million in March from 5.88 million in February.

Still, resales had the best two months on record in January and February, and some builders remain optimistic that sales will meet or exceed last year’s levels, even if interest rates do rise.

That would mean that spending on home furniture may have room to keep growing.

“It ought to turn out to be another record year,” said Timothy Eller, chairman of Centex Corp.’s primary home building operation. “Job formation will begin to return as the economy recovers and with that consumer confidence, and we think that will offset the rise in interest rates.”