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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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Monthly Results 

New Orders

According to our most recent survey of residential furniture manufacturers and distributors, new orders in August 2009 were 12 percent lower than August 2008 levels. New orders were 7 percent higher than July 2009 orders. The August to August decline was the lowest decline since September 2008. Approximately 80 percent of the participants reported lower orders, up from 73 percent last month, but the severity of the decline was not as bad for many of the participants.

Year-to-date, new orders are down 19 percent from the first eight months of 2008, down from 20 percent last month. Year-to-date, 90 percent of the participants have reported lower orders when compared to last year. 

Shipments and Backlogs 

Shipments for August declined 18 percent from August 2008 but were 15 percent higher than July. The increase over July is normal considering, for most, July was a three week month due to the vacation week. Approximately 90 percent of the participants reported lower shipments in August.

Year-to-date, shipments remained 20 percent lower than the first 8 months of 2008. Approximately 93 percent of the participants reported lower shipments.

Backlogs increased 1 percent over July as orders exceeded shipments for the month. Backlogs were 7 percent lower than last August, down from a 13 percent decline reported in July. 

Receivables and Inventories

Receivables were 23 percent lower than August of 2008 compared to a 25 percent decline reported in July. Receivables increased 7 percent over July 2009, but that was less than the increase in shipments, so those results looked good for the month.

Inventories were 24 percent lower than August 2008 up from a 22 percent decline last month. Overall, inventories appear to also be in pretty good shape.  

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees increased 1 percent over July but were still 17 percent lower than August 2008. Factory payrolls increased 16 percent over July, again a normal increase due to the vacation week.

Year-to-date, payrolls were 21 percent lower than the first 8 months of 2008, down from a 22 percent decline reported last month. 

National 

Consumer Confidence

The Conference Board Consumer Confidence Index®, which had declined in September, deteriorated further in October. The Index now stands at 47.7 (1985=100), down from 53.4 in September. The Present Situation Index decreased to 20.7 from 23.0 last month. The Expectations Index declined to 65.7 from 73.7 in September.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumers’ assessment of present-day conditions has grown less favorable, with labor market conditions playing a major role in this grimmer assessment. In fact, the Present Situation Index is now at its lowest reading in 26 years (Index 17.5, Feb. 1983). The short-term outlook has also grown more negative, as a greater proportion of consumers anticipate business and labor market conditions will worsen in the months ahead. Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays.”

Consumers’ assessment of current conditions worsened in October. Those claiming business conditions are “bad” increased to 47.1 percent from 46.3 percent, while those claiming conditions are “good” decreased to 7.7 percent from 8.6 percent. Consumers’ appraisal of the labor market was also bleaker. Those claiming jobs are “hard to get” increased to 49.6 percent from 47.0 percent, while those claiming jobs are “plentiful” decreased to 3.4 percent from 3.6 percent.

Consumers’ short-term outlook grew more pessimistic in October. Those anticipating an improvement in business conditions over the next six months decreased to 20.8 percent from 21.3 percent, while those expecting conditions to worsen increased to 18.3 percent from 14.6 percent. 

Reuters/University of Michigan Surveys of Consumers

The report from Reuters/University of Michigan Surveys of Consumers was more positive, though still lower than last month. According to the report, consumer confidence has improved substantially from the lows recorded in late 2008, and consumers expect the economy to continue to recover during the year ahead. “The ongoing economic recovery will be unlike any other due to changes in consumer spending preferences,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. The report noted that typical recoveries are driven by resurgent spending on homes, vehicles, and other large purchases. In the past, these spending preferences were unleashed as soon as the recovery began. Consumers now put debt reduction and increased savings at the top of their agendas rather than the quick resumption of postponed spending plans. “These changed preferences are due to the extent of the financial reversals suffered by consumers, which spanned every aspect of their economic lives, as well as the widespread recognition among consumers that it will take years for them to fully recover,” Curtin said. Curtin estimated the growth of total personal consumption expenditures at just 1.6 percent during 2010, well below the typical rebound in consumer spending during the first year following a recession.

The Index of Consumer Sentiment was 70.6 in the October 2009 survey, just below the 73.5 in September, but substantially above the 57.6 recorded last October. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 68.6 in October, down from 73.5 in September but significantly above the 57.0 recorded last October. The Current Economic Conditions Index rose to 73.7 in October, just ahead of the 73.4 in September and well above the 58.4 recorded last October.

The majority of consumers reported that their finances had worsened in October for the thirteenth consecutive month—the longest and deepest decline in the sixty-year history of the surveys. The fewest consumers ever recorded cited income gains in the October survey—just 12 percent, about one-third the level that reported income declines (32 percent). Moreover, for the first time in sixty years, the majority of families expected their incomes to remain unchanged or to decline during the year ahead—and that record was repeated in every monthly survey conducted during 2009. 

Gross Domestic Product (GDP)

Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 3.5 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change. Final sales of computers subtracted 0.11 percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point from the second-quarter change. 

Leading Economic Indicators

The Conference Board Leading Economic Index™ (LEI) for the U.S. increased 1.0 percent in September, following a 0.4 percent gain in August, and a 1.0 percent rise in July.

“With the sixth consecutive increase, the LEI’s six-month growth rate has improved to its highest pace since 1983,” says Ataman Ozyildirim, Economist at The Conference Board. “Except for average workweek and building permits, all the leading indicators contributed positively to the index this month. At the same time, the contraction in the coincident economic index has halted in recent months, but the continued downtrend in employment is keeping this index of current economic conditions from rising faster.”

Ken Goldstein, Economist at The Conference Board said:  “The LEI has risen for six consecutive months and the coincident economic index has increased in two of the last three months. These numbers strongly suggest that a recovery is developing. However, the intensity of that recovery will depend on how much, and how soon, demand picks up.”

The Conference Board Coincident Economic Indes™ (CEI) for the U.S. was unchanged in September, following a 0.1 percent increase in both August and July. The Conference Board Lagging Economic Index™ (LAG) declined 0.3 percent in September, following a 0.2 percent decline in August, and a 0.6 percent decline in July. 

Housing 

Existing-Home Sales

Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months, according to the National Association of Realtors®.

Lawrence Yun, NAR chief economist, said favorable conditions matched with a tax credit are boosting home sales. “Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home,” he said. “We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”

Even with the improvement, Yun said the market is underperforming. “Despite spectacular gains in the stock market, principally from the financial sector recovery, most of the 75 million home owning families have more wealth tied to their homes. Home values could soon turn consistently positive and help the broad base of middle-class families, but we are not there yet,” he said. “We’re getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy. Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history.”

Single-family home sales rose 9.4 percent to a seasonally adjusted annual rate of 4.89 million in September from a pace of 4.47 million in August, and are 7.7 percent above the 4.54 million-unit level in September 2008. The median existing single-family home price was $174,900 in September, which is 8.1 percent below a year ago.

Existing-home sales including single-family, townhomes, condominiums and co-ops – jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September from a level of 5.10 million in August, and are 9.2 percent higher than the 5.10 million-unit pace in September 2008. Sales activity is at the highest level in over two years, since it hit 5.73 million in July 2007.

Regionally, existing-home sales in the Northeast increased 4.4 percent in September, and are 11.8 percent higher than September 2008. The median price in the Northeast was $234,700, down 7.0 percent from a year ago.

Existing-home sales in the Midwest jumped 9.6 percent in September and are 7.8 percent above a year ago. The median price in the Midwest was $147,600, which is 1.0 percent below September 2008.

In the South, existing-home sales rose 9.0 percent in September and are 10.8 percent higher than September 2008. The median price in the South was $153,500, down 7.6 percent from a year ago.

Existing-home sales in the West surged 13.0 percent in September and are 5.7 percent above a year ago. The median price in the West was $219,000, which is 15.0 percent below September 2008. 

New Residential Sales

Sales of new one-family houses in September 2009 were at a seasonally adjusted annual rate of 402,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.6 percent below the revised August rate of 417,000 and is 7.8 percent below the September 2008 estimate of 436,000.

Sales of new houses were up in the Northeast and Midwest, but fell in the South and were only slightly down in the West.

The median sales price of new houses sold in September 2009 was $204,800; the average sales price was $282,600. The seasonally adjusted estimate of new houses for sale at the end of September was 251,000. This represents a supply of 7.5 months at the current sales rate. 

Housing Starts

According to the U.S. Census Bureau, privately-owned housing starts in September were at a seasonally adjusted annual rate of 590,000. This is 0.5 percent above the revised August estimate of 587,000, but is 28.2 percent below the September 2008 rate of 822,000. Single-family housing starts in September were at a rate of 501,000; this is 3.9 percent above the revised August figure of 482,000. 

Retail Sales

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $344.7 billion, a decrease of 1.5 percent from the previous month and 5.7 percent below September 2008. Total sales for the July through September 2009 period were down 6.6 percent from the same period a year ago.

Retail trade sales were down 1.7 percent from August 2009 and 6.4 percent below last year. Gasoline stations sales were down 25.3 percent from September 2008 and building material and garden equipment and supplies dealers were down 13.0 percent from last year.

Sales at furniture and home furnishings stores were down 6.5 percent in September versus September a year ago on an adjusted basis. For the nine months ended September, sales were down 12.7 percent in these stores.

Consumer Prices

On a seasonally adjusted basis, the Consumer Price Index for all Urban Consumers (CPI-U) rose 0.2 percent in September, according to the Bureau of Labor Statistics. The increase was less than the 0.4 percent rise in August.

The seasonally adjusted increase in the all items index was broad based, although tempered by a decline in the food index. The all items less food and energy index increased 0.2 percent in September after increasing 0.1 percent in each of the previous two months. Contributing to this increase were advances in the indexes for lodging away from home, medical care, new vehicles, used cars and trucks, and public transportation. The energy index also increased in September, as increases in the indexes for gasoline, fuel oil and electricity more than offset a decline in the index for natural gas.

In contrast to these increases, the food index declined, falling for the sixth time in the last eight months. The index for food away from home increased, but the food at home index declined as the indexes for fruits and vegetables and for meats, poultry, fish and eggs fell sharply. Both the food and energy indexes have declined over the past 12 months. The decline in the food index is the first 12-month decrease in that index in over 40 years. 

Employment

Nonfarm payroll employment continued to decline in September (-263,000), and the unemployment rate continued to trend up, according to the U.S. Bureau of Labor Statistics. The largest job losses were in construction, manufacturing, retail trade, and government.

Since the start of the recession in December 2007, the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent. 

Durable Goods Orders and Factory Shipments

New orders for manufactured durable goods in September increased $1.6 billion or 1.0 percent to $165.7 billion, the U.S. Census Bureau announced. This was the second increase in the last three months. This followed a 2.6 percent August decrease. Excluding transportation, new orders increased 0.9 percent. Excluding defense, new orders increased 0.5 percent. 

Machinery, up five of the last six months, had the largest increase, $1.7 billion or 7.9 percent to $23.4 billion.

Shipments of manufactured durable goods in September, up three of the last four months, increased $1.3 billion or 0.8 percent to $172.6 billion. This followed a 1.4 percent August decrease.

Transportation equipment, also up three of the last four months, had the largest increase, $2.4 billion or 5.6 percent to $44.9 billion. This was led by nondefense aircraft and parts, which increased $1.4 billion.

According to the U.S. Census Bureau, shipments of furniture and related products fell 20 percent in August (similar to our results) and are down 20.5 percent for the year. Orders were off 24 percent in August versus August 2008 and are off 21.4 percent year-to-date. 

Consumer Credit

Total consumer debt fell 5.8 percent (annualized rate) in August based on projections from the Federal Reserve Statistical Release. This followed a 9.1 percent decrease in July and 7.4 percent in June. Consumer debt has been decreasing since the fourth quarter of 2008. Most of the declines have been in revolving debt with the drop from $975.2 billion in the third quarter of 2008 to a projected $899.4 billion in August 2009.

Your browser may not support display of this image.Summary

The results for August, while not great, at least began to move in a better direction. We spent about 5 plus days at the recent High Point Market and noted several interesting things.

Overall, most of the people we talked with felt that business has leveled off over the last four to six months. The feeling is that we may finally have hit bottom. Most did not feel that we have started to improve significantly, but the feeling was that business was not getting much worse.

Many we talked with have adjusted their business to current conditions and feel that, as long as it doesn’t get much worse, they will be able to bump along.

Overall, the mood of market seemed better than the last two markets. As we have noted before, the “mood” of market seems to always feel better than the “business” at market since it is great for retailers and manufacturers/distributors to get together and renew friendships, see friends, make new ones, see great new product, etc.

With that said, the “business mood” did feel better this market, falling on the heels of what many described as a really good premarket. Many of the retailers and buyers noted that their inventories were getting too low and their stores needed a freshening of their looks, so the mood to buy seemed better than the last couple of markets.

One concern we have is the whole credit issue. We did not hear very many pleasant conversations about banking relations or ability to get new financing. This leads to the concern that many retailers (as well as manufacturers/ distributors) have survived by turning inventory to cash. If business does not turn around, sooner or later you run out of inventory to sell. If business gets better, getting credit to buy inventory may be tough.

But all in all, we think most were pleased with the market and several noticed some recent upticks in business. While none believed there was yet a trend, there were signs that we may be seeing some improvement. We clearly need some improvement in consumer confidence before we expect much improved activity. Somehow all the news from Washington is not doing much to help that issue. But let’s leave it on a high note about a relatively good market. Washington politics is way too negative to get into.

We saw lots of great product at market and had many comments that the buyers liked what they saw. Let’s hope all of that turns into orders and the product sells through at the retail level. 

Estimated Business Activity (Millions of Dollars)
        2009 2008
        August July 8 Months August July 8 Months
New Orders 1,489 1,395 12,221 1,684 1,661 15,070
Shipments 1,471 1,392 12,345 1,786 1,728 15,414
Backlog (R) 1,252 1,234   1,346 1,412  
 

  (R) Revised 
 

Key Monthly Indicators
        August 2009

From July 2009

Percent Change

August 2009

From August 2008

Percent Change

8 Months 2009

Versus 8 Months 2008

Percent Change

New Orders  +7 -12 -19
Shipments +15 -18 -20
Backlog +1 -7  
Payrolls +16 -17 -21
Employees +1 -17        
Receivables +7 -23        
Inventories -2 -24        
 
 
Percentage Increase or Decrease Compared to Prior Year
        New Orders Shipments Backlog Employment
2008        
August -16 -16 -16 -13
September -12 -14 -15 -13
October -28 -20 -24 -15
November -23 -21 -25 -17
December -21 -22 -23 -17
2009        
January -24 -24 -22 -17
February -18 -20 -21 -19
March -17 -17 -21 -20
April -27 -21 -26 -21
May -17 -19 -24 -20
June -16 -19 -21 -19
July -16 -19 -13 -20
August -12 -18 -7 -17

 

 
Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants
Saturday, October 03, 2009
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Monthly Results 

New Orders

New orders for residential furniture manufacturers and distributors in July 2009 were 16 percent lower than July 2008, according to our recent survey. The 16 percent decline was the same as the 16 percent decline we reported in the June 2009 versus June 2008 comparison.  July 2008 orders were 10 percent below June 2007. According to the survey some 73 percent of the participants reported lower orders. This means, for some good news, 27 percent reported higher orders than last year. This compares to the 15 percent reporting increases last month.

Year-to-date, new orders remained 20 percent lower than last year’s first seven months, the same as the results in June. For the year-to-date, 93 percent are reporting lower orders, the same as last month. 

Shipments and Backlogs 

Shipments in July were 19 percent lower than July 2008, the same as reported last month. Shipments were 18 percent lower than June, but that is normal with the combination of July normally being a slower sales month plus most participants taking off at least a week for the July 4th vacation.

Year-to-date, shipments remained 20 percent lower than last year. July 2008 shipments were 8 percent lower than the first seven months of 2007. 

Backlogs were actually up 6 percent over June and are now only 13 percent below last year. This compared to a 21 percent decline comparing June 2009 to June 2008. 

Receivables and Inventories

Surprisingly, receivable levels fell 25 percent from July 2008 levels, a bit more than expected. But, receivables were down 10 percent from June 2009, even with 18 percent decline in shipments, month over month. Most likely, some of these results were related to timing of shipments and collections.

Inventories were flat compared to June levels but were 22 percent lower than July 2008. It appears that there has been a lot of focus on lowering inventories to create or conserve cash or reduce borrowing levels.  

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees was 20 percent lower than in July 2008 and fell 1 percent from June levels. In June, the numbers were 19 percent lower than the year before. It appears that companies are continuing to adjust the number of employees to current volume levels.

Payrolls were 17 percent lower than July 2008 and off 18 percent versus June, again reflecting vacation schedules. Payrolls year-to-date were 22 percent lower than the same period a year ago, down slightly from 23 percent last month. 

National 

Consumer Confidence

The Conference Board Consumer Confidence Index®, which had improved in August, slipped slightly in September. The Index now stands at 53.1 (1985=100), down from 54.5 in August. The Present Situation Index decreased to 22.7 from 25.4. The Expectations Index declined to 73.3 from 73.8 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer Confidence, which had improved in August, retreated slightly in September. The Present Situation Index decreased, as consumers viewed both current business conditions and the labor market less favorably than last month. While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes. With the holiday season quickly approaching, this is not very encouraging news.”

Consumers’ assessment of current conditions was less favorable in September. Those claiming business conditions are “bad” increased to 46.3 percent from 44.6 percent, while those claiming conditions are “good” increased to 8.7 percent from 8.5 percent. Consumers’ appraisal of the job market was also less favorable. Those claiming jobs are “hard to get” increased to 47.0 percent from 44.3 percent, while those claiming jobs are “plentiful” decreased to 3.4 percent from 4.3 percent.

Consumers’ short-term outlook was also slightly more pessimistic. Those anticipating an improvement in business conditions over the next six months decreased to 21.3 percent from 22.2 percent, while those expecting conditions to worsen decreased to 15.0 percent from 15.2 percent. 

Reuters/University of Michigan Surveys of Consumers

The Reuters/University of Michigan Surveys of Consumers was a bit more optimistic. According to their report, “Improving economic conditions have increasingly convinced consumers that the recovery has begun, although few consumers anticipated any quick fixes to the dismal state of their own finances.” “Consumers were more optimistic about prospects for the national economy, inflation, and the unemployment rate, although most consumers thought their own finances would remain problematic for some time,” said Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. “After fearing a slide into the abyss of an economic depression in December, consumers voiced the first signs that the depression threat had ended in April, and by September concluded the recovery had begun. Nonetheless, consumer spending will remain in low gear for an extended period of time.” Curtin pegged the growth of total personal consumption expenditures at just 1.6 percent during 2010, well below the typical rebound in spending during the first year following a recession.

 The Index of Consumer Sentiment was 73.5 in the September 2009 survey, up from 65.7 in August, reversing the entire decline since last September and rising to the highest level since the start of 2008. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 73.5 in September, up from 65.0 in August, and the highest level recorded since the September 2007 survey. The Current Economic Conditions Index rose to 73.4 in September, up from 66.6 in August and the highest level since last September’s 75.0.

The key factor that will hold back the usual upsurge in consumer spending is the dismal state of consumer finances. “A majority of consumers judged their finances to have worsened in each of the past twelve months, with a record number of consumers reporting income declines in September,” according to Curtin. Six-in-ten families expected no income increases at all. Even lower inflation did not brighten real income prospects as just 13 percent expected inflation-adjusted income increases during the year ahead. Moreover, declines in home values, pension and investment accounts has made even those who have not suffered income declines more cautious spenders. The desire to decrease their debt and increase their savings remains the dominate motivation of nearly all consumers. 

Gross Domestic Product (GDP)

Real gross domestic product – the output of goods and services produced by labor and property located in the United States – decreased at an annual rate of 0.7 percent in the second quarter of 2009, (that is, from the first quarter to the second quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent. In the second estimate released last month, the decrease in real GDP was 1.0 percent. The GDP estimate released is based on more complete source data than were available for the “second” estimate issued last month.

The decrease in real GDP in the second quarter primarily reflected negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, personal consumption expenditures (PCE), and exports that were partly offset by positive contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

The much smaller decrease in real GDP in the second quarter than in the first primarily reflected much smaller decreases in nonresidential fixed investment and in exports, an upturn in federal government spending, a smaller decrease in private inventory investment, an upturn in state and local government spending, and a smaller decease in residential fixed investment that were partly offset by a much smaller decrease in imports and a downturn in PCE.  

Leading Economic Indicators

The Conference Board Leading Economic Index™ (LEI) for the U.S. increased 0.6 percent in August, following a 0.9 percent gain in July, and a 0.8 percent rise in June.

“Since reaching a peak in July 2007, the LEI fell for twenty months – the longest downtrend since the mid 1970s – but it has been rising since April and its gains have become very widespread,” says Ataman Ozyildirim, Economist at The Conference Board. “The six-month growth rate of the LEI continues to accelerate. At the same time, the downtrend in the coincident economic index, measuring current economic activity, seems to be stabilizing, with the index flat so far this quarter.”

Ken Goldstein, Economist at The Conference Board said:  “The LEI has risen for five consecutive months and the coincident economic index has stopped falling. Taken together, this suggests that the recession is bottoming out. These numbers are consistent with the view that after a very severe downturn, a recovery is very near. But, the intensity and pattern of that recovery is more uncertain.” 

Housing 

Existing-Home Sales

Existing-home sales in August gave back some of their strong gain in July but remain above year-ago levels, according to the National Association of Realtors®.

 Single-family home sales fell 2.8 percent to a seasonally adjusted annual rate of 4.48 million in August from a level of 4.61 million in July, but are 2.5 percent higher than the 4.37 million-unit pace in August 2008. The median existing single-family home price was $177,500 in August, down 12.1 percent from a year ago.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – declined 2.7 percent to a seasonally adjusted annual rate of 5.10 million units in August from a pace of 5.24 million in July, but remain 3.4 percent above the 4.93 million-unit level in August 2008. In the previous four months, sales had risen a total of 15.2 percent.

Lawrence Yun, NAR chief economist, said the tax credit is working. “Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions,” he said. “Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can’t take a housing rebound for granted.”

An NAR practitioner survey shows first-time buyers purchased 30 percent of homes in August, and that distressed homes accounted for 31 percent of transactions; both were unchanged from July.

“The recent trend shows broad improvement in most of the country, but with an expected rise in foreclosures over the next 12 months we need to maintain a healthy level of ready buyers to absorb the inventory. An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market,” Yun said.

“When home prices show sustained gains, credit will become more widely available to other sectors because Wall Street will be able to price risks confidently. Stable home values will also allow more families to purchase consumer products and provide a strong boost for the broader economy.”

He added that many buyers had been on the sidelines during the past few years, waiting for signs of stabilization. “Now that the market is showing some momentum, we have an opportunity to achieve a more rapid and broader stabilization in home prices. Extending and expanding the tax credit also would help to keep other families from becoming upside down in their mortgages or risk foreclosure,” Yun said.

Total housing inventory at the end of August fell 10.8 percent to 3.62 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, down from a 9.3-month supply in July. Unsold inventory totals are 16.4 percent lower than a year ago.

The national median existing-home price for all housing types was $177,700 in August, down 12.5 percent from August 2008. Distressed properties continue to downwardly distort the median price because they generally sell for 15 to 20 percent less than traditional homes. 

New Residential Sales

Sales of new one-family houses in August 2009 were at a seasonally adjusted annual rate of 429,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent above the revised July rate of 426,000, but is 3.4 percent below the August 2008 estimate of 444,000.

The median sales price of new houses sold in August 2009 was $195,200; the average sales price was $256,800. The seasonally adjusted estimate of new houses for sale at the end of August was 262,000. This represents a supply of 7.3 months at the current sales rate, down significantly from the over 10-month’s supply earlier this year. 

Housing Starts

According to the U.S. Census Bureau, privately-owned housing starts in August were at a seasonally adjusted annual rate of 598,000. This is 1.5 percent above the revised July estimate of 589,000, but is 29.6 percent below the August 2008 rate of 849,000.

Single-family housing starts in August were at a rate of 479,000; this is 3.0 percent below the revised July figure of 494,000. The August rate for units in buildings with five units or more was 115,000.  

Retail Sales

The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $351.4 billion, an increase of 2.7 percent from the previous month, but 5.3 percent below August 2008. Total sales for the June through August 2009 period were down 7.6 percent from the same period a year ago.

Retail trade sales were up 3.0 percent from July 2009, but 6.0 percent below last year. Gasoline stations sales were down 26.7 percent from August 2008, reflecting lower prices at the pump, and building material and garden equipment and supplies dealers were down 13.6 percent from last year.

Sales at furniture and home furnishings stores were down 12.8 percent in August from August 2008. Year-to-date, sales at these stores were down 13.7 percent, similar to last month’s 13.6 percent. 

Consumer Prices

On a seasonally adjusted basis, the Consumer Price Index for all Urban Consumers (CPI-U) rose 0.4 percent in August, according to the Bureau of Labor Statistics. The index has decreased 1.5 percent over the last 12 months on a not seasonally adjusted basis.

The 0.4 percent seasonally adjusted increase in the CPI-U was driven by a 9.1 percent rise in the gasoline index. This increase accounted for almost the entire advance in the energy index and over 80 percent of the overall increase. Despite the August increase, the gasoline index has fallen 30.0 percent over the last 12 months. 

Employment

The U.S. Bureau of Labor Statistics reported nonfarm payroll employment continued to decline in August (-216,000), and the unemployment rate rose to 9.7 percent. Although job losses continued in many of the major industry sectors in August, the declines have moderated in recent months.

In August, the number of unemployed persons increased by 466,000 to 14.9 million, and the unemployment rate rose by 0.3 percentage point. The rate had been little changed in June and July, after increasing 0.4 or 0.5 percentage point in each month from December 2008 through May. Since the recession began in December 2007, the number of unemployed persons has risen by 7.4 million, and the unemployment rate has grown by 4.8 percentage points. 

Durable Goods Orders and Factory Shipments

According to the U.S. Census Bureau, new orders for manufactured durable goods in August decreased $4.0 billion or 2.4 percent. This was the second decrease in the last three months. This followed a 4.8 percent July increase. Excluding transportation, new orders were down slightly. Excluding defense, new orders decreased 2.4 percent.

Shipments of manufactured durable goods in August, down following two consecutive monthly increases, decreased $2.4 billion or 1.4 percent. This followed a 2.2 percent July increase.

Transportation equipment, also down following two consecutive monthly increases, had the largest decrease, $0.9 billion or 2.0 percent to $42.1 billion.

According to the full report issued by the U.S. Census Bureau, shipments of all furniture and related products were down 18.8 percent in July versus July 2008. Shipments in this category year-to-date were off 20.5 percent, similar to our survey. Orders were also off 20.9 percent. 

Consumer Credit

The Federal Reserve statistical release projected that consumer credit outstanding decreased at an annual rate of 10.4 percent in July, with revolving credit down 8.0 percent. The 10.4 percent annual rate compared to a estimated decrease of 7.4 percent in June and 4.2 percent in May.

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There was some good news this month. Even though the Consumer Confidence Index was down slightly, the Reuters/ University of Michigan report was much more optimistic. Let’s hope their survey was the right one.

The results this month were, while down as expected, showed some signs of progress with the number of participants reporting increased orders for July over July 2008 improving to 27 percent up from 15 percent last month.

Several company executives we have spoken with seem to feel that we may have hit bottom over the last few months as orders appear to be stabilizing somewhat. It may be too early to tell, but at least it seems that way. On the other hand, we have not heard much about business picking up other than an occasional week here and there.

We did a short speech on the industry recently at a Rotary Club luncheon. I noted to them that based on our surveys over the last several years and annualizing current year-to-date, a company that did $100 million in 2005, would be down to $66 million by the end of 2009. That is just based on average. If you were not one of the ones growing slightly or losing at a lower rate, you would be even smaller.

That requires a lot of adjusting. We believe that most well run companies have just about completed their downsizing. Most people could not imagine the severity of the slump when all of this started. Accordingly, there has been a lot of red ink in the last two years. 

Hopefully, most have adjusted and we really have hit bottom. While it will be a while before we see great gains, we believe those who can hang on, will be rewarded as business slowly recovers. We have just got to see consumers loosen up a bit.

It really is amazing to talk to people about holding off on spending. Those who can afford it keep telling me that they are not spending anyway. For those of you who keep telling me to give more positive news, here is some. I spent money last month buying me a new range finder for golf. It’s great. For those who do not play golf or already have a range finder, take some of your dollars and buy some furniture. (Ok, a weak attempt at some humor.)

   We heard pre-market was very good for most. Here’s hoping that the work that was put into it turns into a good October High Point Market. We hear that inventories at retail are low and floor samples need replacing. Let’s hope that adds up to a bit of buying at market.


 

    
 

Estimated Business Activity (Millions of Dollars)
        2009 2008
        July June 7 Months July June 7 Months
New Orders 1,395 1,558 10,732 1,661 1,865 13,366
Shipments 1,392 1,671 10,874 1,728 2,075 13,628
Backlog (R) 1,234 1,169   1,412 1,479  
 

  (R) Revised 
 

Key Monthly Indicators
        July 2009

From June 2009

Percent Change

July 2009

From July 2008

Percent Change

7 Months 2009

Versus 7 Months 2008

Percent Change

New Orders  -10 -16 -20
Shipments -18 -19 -20
Backlog +6 -13  
Payrolls -18 -17 -22
Employees -1 -20        
Receivables -10 -25        
Inventories -22        
 
 
Percentage Increase or Decrease Compared to Prior Year
        New Orders Shipments Backlog Employment
2008        
July -17 -10 -15 -10
August -16 -16 -16 -13
September -12 -14 -15 -13
October -28 -20 -24 -15
November -23 -21 -25 -17
December -21 -22 -23 -17
2009        
January -24 -24 -22 -17
February -18 -20 -21 -19
March -17 -17 -21 -20
April -27 -21 -26 -21
May -17 -19 -24 -20
June -16 -19 -21 -19
July -16 -19 -13 -20
 

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This Furniture Insights® newsletter report has been re-published with the permission of Smith Leonard PLLC an independent member of the BDO Seidman Alliance.

Firm Profile: Founded in 1930 by BDO Seidman, LLP, the High Point, North Carolina practice was recently acquired by four individuals who have spent the majority of their 100+ year careers building the existing practice. Beginning January 1, 2007, Smith Leonard PLLC became an independent member of the BDO Seidman Alliance. Partners are Ken Smith, Darlene Leonard, Jon Glazman and Mark Bulmer. Among the firm's 32 employees are 18 CPAs.

Service Area – Smith Leonard concentrates primarily in the Triad, but also services companies with domestic locations throughout North Carolina, Virginia, South Carolina and Texas.

Smith Leonard has an extensive network of international relationships that helps service their clients’ needs throughout the world with locations in Asia, Europe, South America, Mexico and Canada. These companies range in revenue size of $2 million to $300 million.

Practice Concentration – The majority of the client base is composed of manufacturing and distribution companies.

Many of its clients are either furniture manufacturers, distributors or suppliers to the furniture industry. Smith Leonard also services companies in retail, transportation, insurance, not-for-profit entities and employee benefit plans. Smith Leonard offers a full range of accounting and consulting services including audits, compilations, reviews, tax planning and compliance. The partners and staff of Smith Leonard also assists clients in mergers, acquisitions, business consulting, cash flow projections, and tax outsourcing. Individual clients benefit from extensive experience in family wealth services including estate tax planning.

The firm continues to produce monthly and annual statistics for the furniture industry. For more information call (336) 883-018 or e-Mail: ksmith@smithleonardcpas.com