Table 1


Table 2
The U.S. ceramic tile industry grew more than 10 percent in 2004, according to data from the U.S. Department of Commerce. This growth marks the third straight year of growth for the industry, which has doubled in the past decade. U.S. consumption of ceramic tile increased 10.1 percent during 2004, from 265.1 million square meters to 292 million square meters (Table 1).



Chart A
The continued growth of the ceramic tile industry during the past year is the result of many factors, including strong consumer demand, growth in the housing market and the overall growth of the U.S. economy.



Chart B
Economic Growth Solid During 2004
Overall, the U.S. economy experienced solid growth during 2004, fueled by the continued strength of the housing market (Table 2 and Charts A, B and C). The gross national product (GNP) increased by 4 percent during the year, while industrial production increased by 4.4 percent. The national unemployment rate for the year was only 5.4 percent, while 2.23 million new jobs were added.



Chart C
Housing sales remained strong throughout the year, spurred by interest rates that remain near a 20-year low point (Chart D). New construction for 2004 increased by 10 percent, while the average 30-year mortgage rate for 2004 was 5.75 percent. Inflation during the year was 2.2 percent.



Chart D
Weaker Dollar, Increased Manufacturing Costs Are a Concern
Despite the solid overall performance of the U.S. economy recently, there are several areas of concern, primarily the weakness of the dollar versus other currency, especially the euro, as well as increased manufacturing costs.



Chart E
The weakness of the dollar versus the euro has been an ongoing concern, as it reduces the profit margins for European manufacturers such as Italy and Spain. As shown in Charts E and F, the dollar lost 19 percent in value versus the euro between 2003 and 2005. By comparison, the dollar gained 17 percent versus the Brazilian real. Although the euro gained significantly in value versus the dollar, the euro has weakened recently, from $1.35 dollars to the euro to $1.23. This recent devaluation was due to the economic and political crisis in Europe resulting from the rejection of the European constitution. It is possible that this weakening of the euro could continue into next year, depending upon the outcome of the situation in Europe. At this point, there are more signs that the dollar is becoming stronger than signs that it is becoming weaker.



Chart F
Another area of concern for those in the ceramic tile industry is the increase in manufacturing costs that has happened in the past three years. During this period, producer prices for raw materials increased more than 30 percent (Chart G). This is due in large part to the increase in oil prices, which show no signs of decreasing in the near future. When the cost of energy, whether it is petroleum, coal or natural gas, goes up, the cost of manufacturing tile goes up as well. Despite these increases in production costs, manufacturers often cannot pass along the costs to the customer because the market is very competitive, so that has eroded profit margins for many manufacturers.



Chart G
Historic Trends Offer Insight into the Future of the Ceramic Tile Industry
In order to understand the present and future trends in the ceramic tile industry, it is important to understand historic trends that have shaped today's business environment and will continue to influence it in the future. Although economic shifts take place every year, when viewed over the long term, larger patterns emerge among these shifts. For example, during the three-decade period from 1975 to 2004, many significant trends emerged that are still affecting the industry today.



Table 3
One of the most significant trends of the past three decades has been the shift from domestic dominance of the U.S. ceramic tile market to dominance by foreign manufacturers (Table 3 and Chart H). If you go back thirty years ago, American manufacturers had approximately 75 percent of the market and imports only accounted for 25 percent. Today, it is the other way around: imports have 75 percent of the market and domestic manufacturing is roughly 25 percent.



Chart H
The reason for this shift is that for many years, American manufacturers did not keep up with foreign manufacturers, in terms of manufacturing technology. In a market that is driven by technology, you cannot keep manufacturing with out-of-date factories. Today, the situation is changing, and domestic manufacturers are operating with the latest technology (Table 4).



Table 4
In addition to the trend of import-driven market growth, another key trend of the past 20 years is that during this period, all major U.S. flooring manufacturers, such as Shaw, Mohawk, Armstrong, Mannington and Congoleum, began to sell ceramic tile. During this period of domestic growth in the ceramic tile industry, Dal-Tile (Mohawk) became the largest U.S. manufacturer, supported by 244 company stores.