Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

Furniture Insights 
 

Monthly Results 

New Orders

The results of our survey of residential furniture manufacturers and distributors were positive again for March 2010. New orders in March were 9 percent higher than March 2009 and up 2 percent over February 2010. March 2009 orders were off 17 percent from March 2008. Approximately 61 percent of the participants had increased orders over last year with several up nice double digits. The 61 percent was up from 58 percent last month.

Year-to-date, new orders remained 9 percent ahead of the first quarter of 2009. Some 61 percent of the participants reported increases year-to-date, down slightly from last month. 

Shipments and Backlogs 

Shipments in March were 5 percent higher than March 2009 and up 12 percent over February. This marked the fourth straight month that overall shipments have increased. Year-to-date shipments are 5 percent higher than the first quarter of 2009 when shipments were down 21 percent so we still have quite a bit of catching up to do.

Approximately 61 percent of the participants reported increased shipments year-to-date, up slightly from last month’s results. We would expect shipments to begin catching up over the next few months. 
 
Backlogs remained strong – up 34 percent over last March and up slightly over February. This was similar to the February to February results. As imported products begin to flow after the Chinese New Year, we expect backlogs to work their way back down some although backlogs in March 2009 were down 21 percent from March 2008. 

Receivables and Inventories

Surprisingly, receivable levels remained low falling 2 percent from February and 2 percent from March 2009, in spite of increased shipments. February levels were also lower than we would have expected. It appears that most companies are keeping a close eye on their accounts, in spite of some street talk about some customers’ accounts aging out a bit more than normal.

Inventories fell 5 percent from February levels and were 19 percent lower than March 2009, about the same as the February to February comparison. As we have noted before, it appears that inventories are in good shape given the drop in business over 2009. We also hear that much of the excess inventories have now been disposed of, so hopefully most of the sales increases are at more normal selling prices versus some of the heavy discounting that occurred in 2009. 

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees fell 3 percent from March last year, versus a 5 percent decline in February. The employee results were flat compared to February.

Payrolls on the other hand were up 15 percent over March 2009 and 17 percent over February. The March to February results were a bit skewed with March having more working days. We are hearing that more manufacturers are working more hours with the people they have and a few of the participants have actually increased the number of people they have working. 

National 

Consumer Confidence

The Conference Board Consumer Confidence Index® increased in May, its third consecutive monthly gain. The Index now stands at 63.3 (1985=100), up from 57.7 in April. The Present Situation Index increased to 30.2 from 28.2. The Expectations Index improved to 85.3 from 77.4 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence posted its third consecutive monthly gain, and although still weak by historical levels, appears to be gaining some traction. Consumers’ apprehension about current business conditions and the job market continues to slowly dissipate. Consumers’ expectations, on the other hand, have increased sharply over the past three months, propelling the Expectations Index to pre-recession levels (August 2007, 89.2). The improvement has been fueled primarily by growing optimism about business and labor market conditions. Income expectations, however, remain downbeat.”

Consumers’ optimism about the short-term future was significantly better in May. The percentage of consumers expecting business conditions will improve over the next six months increased to 23.5 percent from 19.7 percent, while those expecting conditions will worsen declined to 11.5 percent from 12.4 percent. Consumers were also more confident about future job prospects. Those anticipating more jobs in the months ahead increased to 20.4 percent from 17.7 percent, while those anticipating fewer jobs declined to 17.7 percent from 19.9 percent. The proportion of consumers anticipating an increase in their incomes improved to 11.3 percent from 10.5 percent. 

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 3.0 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP had increased 5.6 percent.

   The GDP estimates released are based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent.

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

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a larger decrease in state and local government spending, and a deceleration in nonresidential fixed investment that were partly offset by an acceleration in PCE and a deceleration in imports. 

Leading Economic Indicators

The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.1 percent in April, following a 1.3 percent gain in March, and a 0.4 percent rise in February.

Ken Goldstein, economist at The Conference Board said:  “These latest results suggest a recovery that will continue through the summer, although it could lose a little steam. The U.S. LEI declined slightly for the first time in more than a year, and its six-month growth rate has moderated since December. Meanwhile, the coincident index, a measure of current economic activity, has been improving since mid-2009.” 

Housing 

Existing-Home Sales

According to the National Association of Realtors® (NAR) existing-home sales rose again in April with buyers motivated by the tax credit, improving consumer confidence and favorable affordability conditions.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, and are 22.8 percent higher than the 4.70 million-unit pace in April 2009. Monthly sales rose 7.0 percent in March.

Single-family home sales rose 7.4 percent to a seasonally adjusted annual rate of 5.05 million in April from a pace of 4.70 million in March, and are 20.5 percent above the 4.19 million level in April 2009. The median existing single-family home price was $173,400 in April, up 4.5 percent from a year ago.

Single-family median prices rose in 18 out of 20 metropolitan statistical areas reported in April from a year ago; six of the areas experienced double-digit increases. In data recently reported for the first quarter, 91 out of 152 metros saw price gains.

Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”

Total housing inventory at the end of April rose 11.5 percent to 4.04 million existing homes available for sale, which represents an 8.4-month supply at the current sales pace, up from an 8.1-month supply in March.

“Although inventory levels remain above normal and much of the gain last month was seasonal, the housing price correction appears essentially over,” Yun said. “In fact, a majority of the markets have seen price gains recently. A return to old-fashioned responsible lending and buying will help the housing market avoid disruptive and painful bubble-bust cycles.”

   The national median existing-home price for all housing types was $173,100 in April, up 4.0 percent from April 2009. Distressed homes accounted for 33 percent of sales last month, compared with 35 percent in March.

Regionally, existing-home sales in the Northeast surged 21.1 percent in April and are 41.6 percent higher than a year ago. The median price in the Northeast was $243,000, up 2.1 percent from April 2009.

Existing-home sales in the Midwest rose 9.9 percent in April and are 29.1 percent above a year ago. The median price in the Midwest was $146,400, up 5.8 percent from April 2009.

In the South, existing-home sales increased 8.6 percent in April and are 23.0 percent higher than April 2009. The median price in the South was $150,000, up 1.2 percent from a year ago.

Existing-home sales in the West fell 6.2 percent in April but are 5.2 percent above a year ago. The median price in the West was $212,400, up 3.8 percent from April 2009. 

New Residential Sales

Sales of new single-family houses in April 2010 were at a seasonally adjusted annual rate of 504,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This is 14.8 percent above the revised March rate of 439,000 and is 47.8 percent above the April 2009 estimate of 341,000.

The median sales price of new houses sold in April 2010 was $198,400; the average sales price was $249,500. The seasonally adjusted estimate of new houses for sale at the end of April was 211,000. This represents a supply of 5.0 months at the current sales rate.

Year-to-date, sales of new houses were up 18.6 percent with the Northeast up 57 percent, Midwest up 28.8 percent, South up 8.7 percent and the West up 26.0 percent. 

Housing Starts

According to the U.S. Census Bureau, privately-owned housing starts in April were at a seasonally adjusted annual rate of 672,000. This is 5.8 percent above the revised March estimate of 635,000 and is 40.9 percent above the revised April 2009 rate of 477,000. Single-family housing starts in April were at a rate of 593,000; this is 10.2 percent above the revised March figure of 538,000.

Retail Sales

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $366.4 billion, an increase of 0.4 percent from the previous month and 8.8 percent above April 2009. Total sales for the February through April 2010 period were up 7.3 percent from the same period a year ago.

Retail trade sales were up 0.5 percent from March 2010 and 9.6 percent above last year. Gasoline stations sales were up 30.1 percent from April 2009 and motor vehicle and parts dealers sales were up 15.1 percent from last year.

Sales at furniture and home furnishings stores were down 1.2 percent from March but up 4.5 percent over April 2009 on an adjusted basis. For the first four months of the year, sales at these stores were up 2.4 percent. For the February to April three month period, sales at these stores were up 3.5 percent over the same period a year ago. 

Consumer Prices

According to the Bureau of Labor Statistics, on a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in April. Over the last 12 months, the index increased 2.2 percent before seasonal adjustment.

The index for energy decreased 1.4 percent in April and accounted for the seasonally adjusted decline in the all items index. The indexes for gasoline and natural gas both decreased significantly, outweighing increases in the indexes for fuel oil and electricity. 

Within all items less food and energy, the indexes for recreation, airline fares, and medical care all rose in April. Offsetting these increases were declines in the indexes for apparel and for household furnishings and operations. The continuing stability of the index for all items less food and energy has resulted in an increase over the last 12 months of 0.9 percent, the smallest 12-month increase since January 1966. 

Employment

Nonfarm payroll employment rose by 290,000 in April, the unemployment rate edged up to 9.9 percent, and the labor force increased sharply, according to the U.S. Bureau of Labor Statistics. Job gains occurred in manufacturing, professional and business services, health care, and leisure and hospitality. Federal government employment also rose, reflecting continued hiring of temporary workers for Census 2010.In April, the number of unemployed persons was 15.3 million. The unemployment rate had been 9.7 percent for the first 3 months of this year. 

Durable Goods Orders and Factory Shipments

New orders for manufactured durable goods in April increased 2.9 percent to $193.9 billion, according to the U.S. Census Bureau. This was the fourth increase in the last five months and followed a slight March decrease. Excluding transportation, new orders decreased 1.0 percent. Excluding defense, new orders increased 3.4 percent.

Shipments of manufactured durable goods in April, up two consecutive months, increased 1.4 percent to $196.0 billion. This followed a 2.1 percent March increase.

Computers and electronic products, up following two consecutive monthly decreases, had the largest increase, $2.5 billion or 8.1 percent to $33.4 billion.

According to the U.S. Census Bureau, shipments in March 2010 of furniture and related products were basically even with shipments in March 2009 and were down 3 percent for the first quarter. Orders in this category were off 1.6 percent. 

Consumer Credit

According to the Federal Reserve Statistical Release, consumer credit increased at an annual rate of 1 percent in March. There was a 4.5 percent decrease in revolving credit, which was offset by a 3.9 percent increase in nonrevolving credit. 

Summary

The March results of our survey produced more positive news for the industry. Orders were up for the fifth month in a row on an overall basis and while 61 percent of the participants reported increased orders, a number of participants were only off a few percentage points. Admittedly, we are still comparing to weak results in the first quarter of 2009, but it does appear that we are coming out of the slump.

It will be interesting to see what the April and May results are as we should feel the impact of what was believed to be the best High Point Market in the last several. We continue to hear that business does seem to be picking up. 

There was some concern that the “good feeling” at market was a result of retailers restocking and refreshing their showroom floors. Yet we have heard from some retailers that business at their level is indeed picking up.

Consumer confidence, the real key to growth in the industry, seemed to be moving in the right direction. The recent volatility in the stock market and related bad economic news will not help. Add to that all the worldwide bad news stories, the oil mess in the Gulf and various other stories, it may take a while to get confidence back to pre-recession levels.

Yet, the housing market seems to be helping. Not only are existing home sales up, but so were new home sales. And there appears to be growing stability in home prices. This along with some improved consumers’ moods, should mean that furniture sales should continue to improve. Let’s hope so. Hopefully the Memorial Day weekend will be a good one at retail. 

  (R) Revised