The down market for new-home sales has affected more than just the construction industry. Even as the overall economy improves, home-product manufacturers feel the pinch and react with factory closings and layoffs.
Elkay said March 18 that its Yorktowne Cabinetry plant in Red Lion will close by August and operations will be consolidated in a Virginia plant because the down housing market makes it impossible for the finances to work at the midstate plant.
“Our industry was hard hit by the economy,” Elkay spokeswoman Linda Carlisle said, “and the company’s products sell better when the housing market is on an upswing.”
National housing statistics back up the down trend.
Sales of new single-family homes declined 17 percent in February to a record low of 250,000 units nationwide, according to Washington, D.C.-based National Association of Home Builders. The Northeast saw the largest decline in new home sales, a 57 percent drop from a year ago, according to the association.
“February’s sales numbers add to the mounting evidence that the housing recovery is hesitating along with the inconsistent progress of the economic recovery,” association chief economist David Crowe said. “Another problem, however, is consumer perceptions of where home values are headed, particularly when national indexes do not reflect local markets.”
Home-product manufacturers with local operations echoed similar sentiments, saying the link between the housing and factories is almost a one-to-one relationship. That’s even the case for products that don’t get bolted to a wall, such as mattresses.
Real estate values continue to decline in many parts of the country, said James B. Orders III, president of Park Place Corp., a South Carolina mattress maker with a factory in Lancaster County. The company wants a buyer for the Denver, Pa., factory because it no longer makes mattresses for sale in the Northeast.
Declining real estate values means many banks won’t lend for fear the property won’t be worth its price if the borrower defaults, Orders said. It also keeps investors from buying property, he said.
“For a broad-based recovery to happen, real estate values don’t have to go up,” Orders said. “They simply have to stop declining.”
The net result is that few people are buying homes, which triggers fewer sales of other products, such as bedding, cabinets and flooring, he said. People only replace mattresses every 10 or 12 years, or when they buy a new home, he said.
The housing market issue is on the radar of state associations as well as national groups, including the Pennsylvania Manufacturers’ Association, executive director David Taylor said.
“New homes construction includes everything that goes into a new home, not just the excavation and the foundation and frame,” he said.
It’s not a big surprise that as poor sales of new homes continue, manufacturing will feel the effects as well, he said.
The homebuilders association estimates that every 1 million new single-family homes creates 3 million jobs, half of which are in non-construction industries and primarily manufacturing, Crowe said.
“Refrigerators, cabinetry, carpets, bath fixtures, paint,” he said. “It’s a whole raft of items, and they’re spread out all over the country.”
Armstrong World Industries also has a huge investment in the strength of housing markets for its flooring, ceiling tile and cabinetry products. The company has routinely mentioned the impact of housing markets in its financial filings with the U.S. Securities and Exchange Commission.
The company’s net sales have dropped every year since 2007, when they were $3.5 billion, according to its Feb. 28 year-end report. In 2010, net sales were more than $2.7 billion, representing a 22 percent decline over three years.
Armstrong posted a $21 million loss in the fourth quarter of 2010 and income was $11 million for the whole year, down from $78 million in 2009. The company also closed several factories last year to save money and reduce manufacturing capacity.
Armstrong executives were not immediately available to comment for this story.
Aquatic, the bath fixture manufacturer with a factory in West Donegal Township, said in February it was stopping production of tubs and showers but would keep its shop that makes molds for other tub and shower factories around the country.
The factory employs 78 workers, the first of whom would be given layoff notices in May, but others would be offered jobs in the mold shop, according to the company. Again, the housing market was the largest factor, President Gary Anderson said in a statement.
“When you lose construction, the immediate impact is that you lose those local construction jobs,” Crowe said. “But you lose many more jobs nationwide.”