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The Federal Reserve's decision to raise short-term interest rates by 1/4% is expected to have a major effect on the home construction industry which will be reflected in the home furnishings and furniture industries' economic performance. Most industry observers expect that with fewer housing starts there will be fewer furniture purchases, but some predict the possibility of future interest rate boosts may inspire immediate purchases. The office furniture industry should perform well for investors and be unaffected by interest rates.

The house construction segment of the construction industry has shown strength in the opening months of 1997 but industry analysts expect that the quarter-point interest rate rise of March, 1997 and anticipated further increased rates will slow new housing starts and effect industry growth for possibly 3 to 5 years. While industry performance is expected to be high in 1997, investors should be aware that its history shows high volatility and that earning estimates may be reduced at any time.

The household products industry has managed to stay in the middle of the pack both in economic growth and development and in investment strength largely through its ability to add innovative variations to its commonplace products and by broadening to the international market where its products are not commonplace. Individual companies that have learned to work with mass merchandisers, have consolidated, and are producing new products will provide special situations for investment in an industry whose securities usually trade at high relative P/E multiples.

Volume gained 3% to 4% in 1996 for the soft drink industry with greater demand in the US and abroad, and market share growth is reported for alternative beverages. PepsiCo has announced plans to restructure both in the US and abroad to further concentrate on its strength. Sales growth in the non-cola segment is leading Coca-Cola to introduce new products. This industry is still timely and has good prospects through 1999-2001.

A greater variety and abundance of heat-and-serve and ready-to-eat packaged foods are available from the food processing industry as a result of the increased convenience trend. In addition, foodservice comprises at least 10% of the food industry's business and has become a core industry segment in the 1990s. Most stocks in this industry are not timely, although several have appeal for conservative investors on an individual basis.

The household products industry is more challenging in 1997 because of business method changes that benefit retailers over manufacturers. Distribution has changed and mass merchants may not accept the products that manufacturers wish them to carry. Major household products manufacturers will continue to have the critical mass necessary for business operations.

The furniture/home furnishings industry is doing favorably in early 1997, especially the industrial sector. The timeliness of investments in the industry is high in early 1997 compared to low in mid-1996. Companies in office furniture manufacturing, hotel/motel furnishings and restaurant furnishings are outperforming the other parts of the industry.

There are fewer new orders in the homebuilding industry expected in 1997 as economic growth decreases and housing starts decrease. Relative market performance for the industry is expected to be average in 1997. A selective acquisition policy should govern investors interested in the homebuilding industry. Investors should invest in companies that are expected to grow and do well financially during 1997.

Housing starts in 1996 were approximately 7% above 1995 and with pent-up housing demand exhausted, housing starts are expected to decrease 7% in 1997. An even performance by financial markets and the US economy in 1997 should result in an excellent economic performance by the building materials industry. The building materials industry is expected to outpace market averages during 1997.

Some trucking companies are performing better, but that improvement may not continue. The merger of freight railroads Conrail and CSX, if consumated, could result in lost market share for less-than-truckload carriers such as American Freightways and CNF Transportation's Con-Way group, which serve the East. The trucking industry has a middle-of-the-pack Timeliness rank, but investors are advised to place their funds elsewhere.

The industrial services industry will report solid profit growth for 1996, but its Timliness rank has dropped since June. Since September, investors have in large part ignored the industry, but some companies offer above-average price performance prospects for the 6- to 12-month time frame. Most personnel-placement stocks have good appreciation potential for the three- to five-year time frame.

Continued use of growth opportunities in both domestic and foreign markets have permitted the food processing industry to retain its profitability despite the rising competition from private label foods. Expansion of global trade, new flavors and variations of food favorites and numerous mergers and acquisitions establish food processing securities as good long-term investments for conservative investors.

Continued steady domestic and foreign growth for the soft drink industry makes both short- and long-term investment attractive. The two giants, Coca-Cola and PepsiCo. both increased domestic sales and Coca-Cola showed foreign market growth. PepsiCo foreign sales were disappointing and the company is restructuring its overseas operations. Non-cola drinks were fast growing but still possess only a small market share.

The growth of huge retail mass merchandisers has placed the household products industry in a questionable financial position where small and medium sized manufacturers may be forced to merge with the giants in order to keep retailers from controlling their production and profits. Even giant manufacturers had their problems with retailers but they seem to have managed these in 1996. Investors should follow the companies who embark on acquisition projects because marketing competition will be increasing.

Office furniture manufacturers were the only section of the furniture and home furnishing industries to perform even slightly above the industrial market average in early 1996 and only a very few companies within the industry are expected to show any growth in the coming year. Demand for products has been dropping steadily although companies have improved their own economic positions, so the overall expectations are moderate to poor.

The trucking and transport leasing industries are not expected to pull out of a performance slump within the short term. Less-than-truckload shipments are lower, and earnings will be affected by competition, restructuring costs and higher driver pay. J.B. Hunt hopes to cut driver turnover by increasing wages. Shares of the trucking industry are not considered timely investments.

The soft drink industry reported about 6% growth in the first half of 1996. Coca-Cola experienced an 8% rise in both domestic and foreign sales. Greater expansion is expected during the next few years, especially for exports. Soft drink industry stocks are rated timely buys for the immediate future and good investments for the three- to five-year period.

The food processing industry fears rising food prices, driven by high global demand and tight supplies. Pressure on prices may ease as farmers increase acreage of corn, wheat and fruits, but growing population trends are expected to keep food prices high. Some processors, such as Hershey Foods, try to keep prices low to maintain their market share. Several food company stocks appeal to conservative investors because of safety, but most are not rated timely for 1996-1997.

Stocks in the household products industry are not timely in 1996, due to the defensive traits of the industry's profits in a strong economy. Revenue and earnings have only been mediocre since 1992, also. Mass merchandisers have become larger and more sophisticated in their inventory management, and small manufacturers must change to survive. Further industry consolidation is anticipated, along with internal structural transition.

Economic recovery was absent from the furniture/home furnishings industry during the 2nd qtr of 1996, although interest rates were stable and housing starts increased. Sales and earnings for the 2nd qtr of 1996 have also been weak, even though results have been aided by cost-cutting efforts and by manufacturers' inventory reduction. There are few timely stocks in this industry, although several have potential from 1996 through 1999-2001.