U.S. office furniture orders up but outlook cloudy

NEW YORK, July 2 (Reuters) - U.S. office furniture orders rose 2 percent in May compared with a year earlier, to $990 million, but a slump is likely later this year, a trade group said on Tuesday.

The Business and Institutional Manufacturers Association said May shipments rose 1 percent to $945 million.

For the year to date, orders are up 1 percent and shipments are flat, it said.

But the trade group said it expects full-year orders and shipments to fall 4.7 percent and 6.8 percent, respectively.

"The industry's primary macroeconomic drivers are either negative (business confidence, corporate profits) or deteriorating (service sector employment, new office construction)," Raymond James analyst Budd Bugatch wrote in a note to clients commenting on the BIFMA data.

Rising commodity costs are also pressuring margins, forcing manufacturers to raise prices in the face of soft demand, Bugatch said.

Nonetheless, the analyst affirmed his "outperform" ratings on Herman Miller Inc (MLHR.O) and Knoll Inc (KNL.N) and his "market perform" rating on Steelcase Inc (SCS.N).

"Each of our companies under coverage is well managed and high quality, boasting individual competitive strengths and positive cash flow dynamics," Bugatch wrote.

He affirmed his "underperform" rating on HNI Corp (HNI.N), saying the company is exposed to the struggling low end of the office furniture market as well as the housing slump. HNI makes fireplace products in addition to office furniture.

BIFMA compiled its May report from 38 companies that account for about 75 percent of the industry's volume. (Reporting by Helen Chernikoff; editing by John Wallace)