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May 6, 2022

Is Recession Coming?

After couple of years of crazy COVID-related issues it's quite safe to say we're still far from normal. A lot of people of worried as of today because of 2 global issues (we'll skip a war in Europe) - inflation and possible recession.

While you can argue inflation sometimes can be barely felt, in 2022 you can tell absolutely everyone feels it - it's impossible to not pay attention to. During last year and this year (2022) we can see a constant increase in prices for everything. That, unfortunately, includes our furniture industry.

As you may noticed we increased prices for some lines of items few times. As a huge inconvenience in itself (it takes a huge amount of manpower to properly adjust prices) it's also a huge blow to our customers - a lot of people see furniture purchase as 'investment' or as an act related to a move, which is in most cases, not immediate. Let's be honest - it sucks to eye a couch and then realize it now costs 20% more than it used to.

warehouses still experience problems

Warehouses still expect shortages and operating cost increases

Besides, at least in our industry, we can confirm that a lot of supply issues are still unresolved. Quite a few factories do not expect a certain product line restocks until 2023. Quite a few models are completely out of stock with no confirmed date of restocking in sight. We always ask customers to check stock - and that is still extremely important in current market conditions.

Inflation has become a true problem: while housing and rent prices increased beyond normal a huge drop in customers sentiment and overall purchasing ability is expected. We can confirm that overall business has cooled down somewhat in 2022, which is quite normal in current circumstances. That's not only applicable to our niche, but it's also pretty much across the board.

Largest Ecommerce furniture retailer Wayfair reported quite a losses and its share price declined 26% in a single day, currently at $65. What a decline from year ago when share was over $300! Same declines are reported for other ecommerce giants, like Ebay - it's quite safe to say at this point whole Ecommerce sector is in quite a decline trend at the moment because of inflation and general consumer purchasing power.

Stock market also reacts to all this: you can clearly see sentiment if you follow the stock market. Stock market is typically forward looking and -3% and -5% decline days for S&P500 or Nasdaq truly reflect a general slowdown.

When times are hard people tend to spend less; and they focus a majority of spending of essentials: food and housing. A new t-shirt, phone or dresser can wait. Especially if you still have an old one. That makes perfect sense and 100% understandable.

To fight the inflation Fed started to hike rate basis point at increased pace: 0.5 yesterday and at least 3 more hikes of same amount are coming over in 3 months. What's important to understand that those rate hikes will slow down inflation that otherwise would go out of hand; but at the same time a debt, loans, capital would become much more expensive.

In general that would mean a lot of businesses, exceptionally those are not quite profitable, the ones that depend on cheap loans to operate might go out of business or will be forced to decrease at size, force a good chunk of employees to quit, etc. If that becomes a major thing we might hit a recession - an even more people with no or limited purchasing power and declining economy.

Is this a realistic picture? Is recession truly coming and unavoidable? At this point time it seems unlikely, however it's possible. Slowdown - yes. Recession - we'll see.

We try to be optimistic and do whatever we can to help our business and our customers in these times. We can clearly see a slowdown, and that's expected and normal. We can only hope this will not last long and by end of this year United States and world's economy will overcome major obstacles and will continue to go forward.

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