Monthly Survey Of Furniture Business Reports Increase In New Orders

Furniture Insights

Monthly Results

New Orders

According to our recent survey of residential furniture manufacturers and distributors, new orders increased 3 percent in July 2010 compared to July 2009 results. New orders in July 2009 were off 16 percent from July 2008 (July 2008 orders were off 17 percent from July 2007). This increase represented the smallest increase since orders were flat in October 2009 compared to October 2008.

In July, approximately 45 percent of the participants reported increases in orders, versus some 69 percent last month. As has been the case lately, the percentage increases and decreases were significantly different among the participants, with some reporting good gains while some were off considerably.

Year-to-date, new orders are up 9 percent over last year, down from 10 percent last month. Last year, the first seven months were off 20 percent from 2008. Approximately 67 percent of the participants have reported increased orders year-to-date through July, up from 64 percent last month.

Shipments and Backlogs 

Shipments in July were up 15 percent over July 2009, once again eating into backlogs. Shipments were off 16 percent from June but that is somewhat normal with most companies taking at least one week off in July. Approximately 65 percent of the participants reported increased shipments over July a year ago, similar to last months results.

Shipments are now up 8 percent year-to-date, up from 7 percent last month. At this time last year, shipments were off 20 percent from 2008.

Backlogs were 27 percent above last year, down from a 35 percent increase reported last month, as shipments exceeded new orders.

Receivables and Inventories

Receivables were 12 percent higher than July 2009 levels, somewhat in line with the 15 percent increase in shipments over last year. But they were only down 3 percent from June, while shipments were off 16 percent from June. We hope that is timing, as most of July shipments would have been made in the latter part of July with payments made in August.

Inventories increased again in July, up 4 percent from June, when they were up 5 percent from May. Inventories are now up 6 percent over July 2009, up from a 2 percent increase last month.

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees increased 3 percent over July 2009, up from a 2 percent increase last month. July results were about even with June levels.
Factory and warehouse payrolls were up 17 percent from last July, about the same increase as last month. Last year, factory and warehouse payrolls were down 17 percent from July 2008. Year-to-date, payrolls are up 12 percent over last year, again about the same as reported last month.

National

Consumer Confidence

According to the Conference Board, the Consumer Confidence Index, which had improved in August, fell in September. The Index now stands at 48.5 (1985=100), down from 53.2 in August. The Present Situation Index decreased to 23.1 from 24.9. The Expectations Index declined to 65.4 from 72.0 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: Septembers pull-back in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook. Overall, consumers confidence in the state of the economy remains quite grim. And, with so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months.

Consumers assessment of current conditions weakened further in September. Those saying business conditions are bad increased to 46.1 percent from 42.3 percent, while those claiming business conditions are good declined to 8.1 percent from 8.4 percent. Consumers appraisal of the labor market was also less favorable. Those claiming jobs are hard to get rose to 46.1 percent from 45.5 percent, while those stating jobs are plentiful decreased to 3.8 percent from 4.0 percent.

Consumers expectations took a turn for the worse in September. The percentage of consumers expecting business conditions will worsen over the next six months rose to 16.4 percent from 13.4 percent, while those anticipating business conditions will improve declined to 14.9 percent from 16.9 percent.

Leading Economic Indicators

The Conference Board Leading Economic Index (LEI) for the U.S. increased again in August. The interest rate spread, real money supply, and the average workweek made the largest positive contributions to the index in August, more than offsetting the negative contributions from initial unemployment claims (inverted) and supplier deliveries. The six-month change in the index has slowed to 2.0 percent (about a 4.1 percent annual rate) for the period through August 2010, down from 4.8 percent (about a 9.7 percent annual) for the previous six months. In addition, the weaknesses among the leading indicators have become slightly more widespread than the strengths over the past six months.

The Conference Board Coincident Economic Index for the U.S., a measure of current economic activity, was unchanged in August. The six-month change in the coincident economic index stands at 1.1 percent (a 2.2 percent annual rate) through August 2010, up from 0.7 percent (a 1.4 percent annual rate) for the previous six months. In August, the lagging economic index increased slightly.

Housing

Existing-Home Sales

According to the National Association of Realtors, 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 4.13 million in August from an upwardly revised 3.84 million in July, but remain 19.0 percent below the 5.10 million-unit pace in August 2009.
Single-family home sales rose 7.4 percent to a seasonally adjusted annual rate of 3.62 million in August from a level of 3.37 million in July, but are 19.2 percent lower than the 4.48 million level in August 2009. The median existing single-family home price was $179,300 in August, up 1.2 percent from a year ago.

Lawrence Yun, NAR chief economist, said home sales still remain subpar. The housing market is trying to recover on its own power without the home buyer tax credit. Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual because of lingering economic uncertainty, Yun said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.43 percent in August from 4.56 percent in July; the rate was 5.19 percent in August 2009.

The national median existing-home price for all housing types was $178,600 in August, up 0.8 percent from a year ago. Distressed homes rose to 34 percent of sales in August from 32 percent in July; they were 31 percent in August 2009.
Total housing inventory at the end of August slipped 0.6 percent to 3.98 million existing homes available for sale, which represents an 11.6-month supply at the current sales pace, down from a 12.5-month supply in July.

Regionally, existing-home sales in the Northeast rose 7.9 percent to an annual level of 680,000 in August but are 24.4 percent below August 2009. The median price in the Northeast was $260,300, up 7.6 percent from a year ago.
Existing-home sales in the Midwest increased 5.0 percent in August to a pace of 840,000 but are 26.3 percent below a year ago. The median price in the Midwest was $149,600, up 0.4 percent from August 2009.

In the South, existing-home sales rose 5.2 percent to an annual level of 1.62 million in August but are 13.4 percent below August 2009. The median price in the South was $155,000, down 1.5 percent from a year ago.

Existing-home sales in the West jumped 13.8 percent to an annual pace of 990,000 in August but are 16.1 percent lower than August 2009. The median price in the West was $214,700, which is 2.5 percent below a year ago.

New Residential Sales

Sales of new single-family houses in August 2010 were at a seasonally adjusted annual rate of 288,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. This is unchanged from the revised July rate of 288,000 and is 28.9 percent below the August 2009 estimate of 405,000.

The median sales price of new houses sold in August 2010 was $204,700; the average sales price was $248,800. The seasonally adjusted estimate of new houses for sale at the end of August was 206,000. This represents a supply of 8.6 months at the current sales rate.
Year-to-date, sales of new houses were off 10.4 percent nationwide, with the Northeast up 12.1 percent, the Midwest off 7.9 percent, the South off 13.0 percent and the West off 13.1 percent.

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 10.5 percent above the revised July estimate of 541,000 and is 2.2 percent above the August 2009 rate of 585,000. Single-family housing starts in August were at a rate of 438,000; this is 4.3 percent above the revised July figure of 420,000. Housing starts were up in all regions except the Northeast.

Retail Sales

The U.S. Census Bureau announced 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 $363.7 billion, an increase of 0.4 percent from the previous month, and 3.6 percent above August 2009. Total sales for the June through August 2010 period were up 4.7 percent from the same period a year ago.

Retail trade sales were up 0.5 percent from July 2010, and 3.7 percent above last year. Nonstore retailers sales were up 10.5 percent from August 2009 and gasoline stations sales were up 9.6 percent from last year.

Sales at furniture and home furnishings stores, on an adjusted basis, were off 0.5 percent in August compared to July, but were up 2.4 percent over August 2009. Year-to-date, sales at these stores were up 2.1 percent over the same period a year ago.

Consumer Prices

The U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in August on a seasonally adjusted basis. (Before seasonal adjustment, the all items index increased 0.1 percent for the month.) Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment.

The energy index rose in August and, as in July, was the primary factor in the seasonally adjusted all items increase. All major energy components posted increases, with the gasoline index being the main factor.  The food index, which declined in July, rose in August.

The index for all items less food and energy was unchanged in August after increasing in each of the previous three months. This pattern mirrors the shelter index, which also was unchanged in August after rising in recent months. Posting increases in August were the indexes for medical care, used cars, and new vehicles, while the indexes for recreation and apparel declined.

Over the last 12 months, the index for all items less food and energy rose 0.9 percent, though the shelter component posted a 0.7 percent decline. The food index increased at a similar rate, rising 1.0 percent, with grocery store food prices up 0.8 percent. The energy index posted a somewhat larger increase, rising 3.8 percent with gasoline up 4.4 percent.

Employment

Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, according to the U.S. Bureau of Labor Statistics. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).

The number of unemployed persons (14.9 million) was little changed in August. From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent.
The number of long-term unemployed (those jobless for 27 weeks and over) declined by 323,000 over the month to 6.2 million. In August, 42.0 percent of unemployed persons had been jobless for 27 weeks or more.

Durable Goods Orders and Factory Shipments

New orders for manufactured durable goods in August decreased $2.5 billion or 1.3 percent to $191.2 billion, according to the U.S. Census Bureau. Down three of the last four months, this decrease followed a 0.7 percent July increase. Excluding transportation, new orders increased 2.0 percent. Excluding defense, new orders decreased 1.2 percent.

Transportation equipment, also down three of the last four months, had the largest decrease at 10.3 percent. This was due to nondefense aircraft and parts, which decreased $3.6 billion.
Shipments of manufactured durable goods in August, down following two consecutive monthly increases, decreased $3.1 billion or 1.5 percent to $197.9 billion. This followed a 2.5 percent July increase.

Transportation equipment, also down following two consecutive monthly increases, had the largest decrease, $3.1 billion or 5.9 percent.

According to this report, shipments of furniture and related products were even with July 2009 and up 0.5 percent year-to-date. Orders in this category were up 1.5 percent year-to-date over the same period a year ago.

Consumer Credit

According to the Federal Reserve statistical release, consumer credit decreased again in July, decreasing at an annual rate of 1_ percent. Revolving credit decreased at an annual rate of 6.3 percent while non-revolving credit increased at an annual rate of _ percent.

Summary

The results for July orders were some-what disappointing, though really not unexpected based on our conversations with those in the industry. The good news is, there was continued improvement in orders, albeit a smaller increase. Shipments on the other hand were good, which will eventually help cash flow.

The changes among participants continue to be widespread with some reporting significant double digit improve-ments, while others report significant declines. We expect any given month can produce widespread differences. Overall though, with about two-thirds of the participants up for the year, that is not a bad thing considering how bad 2008 and 2009 were.
We are not expecting August results to improve that much and September conversations have been mixed. We continue to hear of good weeks and bad weeks, with little concentrated traction.

We were talking with someone a week or two ago discussing the industry and the decline in shipments. One of the things we wondered was the impact of declining prices of furniture on the statistics. A few years ago, that dining room suite that sold at wholesale for $2,000 now is imported and sold at $800. Those kinds of comparisons really have an impact on the industry numbers. We have always wished we could get a comparison of units sold, but that information is not available as far as we know. Mainly because there is no real definition of what a unit is.
 We heard that Pre-Market was well attended and the mood was very good. As we talked with one furniture executive some years ago, he noted that once upon a time markets were gauged by orders. Then when orders were not written so much at market, they started counting people. Then retailers started bringing fewer people, so we counted companies attending. He noted that the particular market we were in, they had now stopped worrying about number of companies, but noted their compliments were up 25 percent.

Based on the consumer confidence, housing and other economic indicators, the recovery continues to move along painfully slow. The good news is that consumer debt continues to decline. If that holds up, when we do see overall economic performance increase, consumers should have more capacity to buy more furniture.

Also, though not at the pace we would like, it is good to see that our seven indicators continue to show positive improvement since last October. That is a good thing in spite of business not being where we would all like it to be.

Lets hope that business over the first couple of weeks of October shows some improvement. That will make for a much better time for all at the High Point Market.