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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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Furniture Insights Monthly Results New Orders As expected, new orders in June 2008 were lower than orders received in June 2007, according to our latest survey of residential furniture manufacturers and distributors. The decline of 14 percent was somewhat of a surprise, as while we expected a decline, the decrease was a bit more than we expected. The June decline pushed the year-to-date results to a decrease of 9 percent in new orders compared to 8 percent last month. The interesting thing about this month’s results was that even with the severe decline in orders, only 65 percent of the participants reported declining orders, a similar percent reported last month. The difference for this month was that several of the participants reported significant declines in orders while most with increases were relatively small. For the first half of 2008, some 86 percent of the participants have reported declines in orders. This percentage was about the same as the last two months. Shipments and Backlogs Shipments in June were 9 percent below June of 2007, but were 4 percent above the May 2008 results. This caused the year-to-date shipments to drop to 9 percent below last year, up from 8 percent last month. We would note that for the first half of 2007, shipments were 7 percent below the first half of 2006. Approximately 81 percent of the participants have reported lower shipments than the previous year, up slightly from 78 percent last month. Backlogs fell 10 percent from last year’s levels as shipments exceeded orders causing the participants to eat further into backlogs. Backlogs fell 6 percent from May levels for the same reason. Receivables and Inventories Receivables fell more in line in June when they were 10 percent below last year, in line with the 9 percent decline in shipments (8 percent year-to-date). Receivables were down 6 percent compared to May even with the 4 percent increase in shipments. Several retailers have announced closings, but no significant bankruptcy filings have been reported as yet. Inventory levels in June 2008 were flat with May 2008 and down 4 percent compared to June 2007. In May, inventories were 5 percent below May 2007. Factory Employees and Payroll The number of factory employees in June 2008 fell 2 percent compared to May and were down 9 percent compared to June a year ago. This was in line with the May 2008 to May 2007 comparison. Factory payrolls fell 15 percent compared to June 2007. This caused the year-to-date factory payrolls to fall 11 percent below last year, up from 10 percent last month. National Consumer Confidence Finally two good reports in a row from The Conference Board. The Conference Board Consumer Confidence Index, which improved moderately in July, improved again in August. According to the report, the Index rose to 56.9, up from 51.9 in July. The Present Situation Index fell slightly to 63.2 from 65.8 last month. But the Expectations Index increased to 52.8 from 42.7 in July. Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence readings suggest that the economy remains stuck in neutral, but may be showing signs of improvement by early next year. Declines in the Present Situation Index, both in terms of business conditions and the labor market, appear to be moderating. The Expectations Index, which posted a significant gain this month, suggests better times may be ahead. However, overall readings are still quite low by historical standards and it is still too early to tell if the worst is behind us.” Consumers’ assessment of current conditions did not improve in August. Those claiming business conditions are “bad” increased to 33.2 percent from 32.6 percent, while those claiming business conditions are “good” edged up to 13.4 percent from 13.2 percent last month. Consumers’ short-term expectations improved again, but still remain quite negative. Those expecting business conditions to worsen over the next six months declined to 25.8 percent from 32.4 percent, while those expecting conditions to improve rose to 11.9 percent from 9.2 percent. The outlook for the labor market was also less pessimistic. The percent of consumers anticipating fewer jobs in the months ahead decreased to 30.6 percent from 37.3 percent, while those expecting more jobs increased to 10.5 percent from 8.0 percent. Leading Economic Indicators On the other side of the coin, The Conference Board reported that the U.S. leading index decreased 0.7 percent, the coincident index increased 0.1 percent and the lagging index increased 0.4 percent in July. According to the report, the leading index declined sharply in July, the second decrease in the index in the past three months. Building permits, stock prices, and weekly initial claims for un-employment (inverted) made very large negative contributions to the index this month, more than offsetting positive contributions from the interest rate spread and consumer expectations. The six-month change in the index stands at -0.9 percent (about a -1.8 percent annual rate), up from the 3.4 percent annual rate of decline at the end of the first quarter of 2008. However, the weaknesses among the leading indicators continue to be very widespread. Three of the ten indicators that make up the leading index increased in July. The positive contributors – beginning with the largest positive contributor – were the interest rate spread, index of consumer expectations, and manufacturers’ new orders for nondefense capital goods. The negative contributors – beginning with the largest negative contributor – were building permits, stock prices, average weekly initial claims for unemployment insurance (inverted), real money supply, and manufacturers’ new orders for consumer goods and materials. Average weekly manufacturing hours and the index of supplier deliveries (vendor perfor-mance) held steady in July. Housing Existing-Home Sales According to the National Association of Realtors® (NAR), existing-home sales in July rose to the highest level in five months. All existing home sales increased 3.1 percent in July and June. These sales remained 13.2 percent below the July 2007 rate. NAR President Richard F. Gaylord said the up-and-down pattern may break soon. “We hope the new tools in the hands of home buyers from the recently enacted housing stimulus package will spark a sustained sales uptrend in the months ahead,” he said. “Buyers who’ve been on the sidelines should take a closer look at what’s available to them now in terms of financing and incentives.” Lawrence Yun, NAR chief economist, said home prices in some regions could soon increase. “Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time,” he said. “Still, inventory remains high in many parts of the country and will require time to fully absorb. We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns.” Single-family home sales rose 3.1 percent to a seasonally adjusted annual rate of 4.39 million in July from 4.26 million in June, but are 12.4 percent below the 5.01 million-unit level a year ago. The median existing single-family home price was $210,900 in July, down 7.7 percent from July 2007. Regionally, existing-home sales in the West jumped 9.7 percent in July and were 0.9 percent higher than July 2007. The median price in the West was $273,200, down 22.2 percent from a year ago. In the Northeast, existing-home sales rose 5.9 percent in July, but are 11.8 percent below a year ago. The median price in the Northeast was $278,700, which is 4.9 percent lower than July 2007. Existing-home sales in the Midwest increased 0.9 percent in July, but are 17.0 percent lower than July 2007. The median price in the Midwest was $175,400, up 1.0 percent from a year ago. In the South, existing-home sales slipped 0.5 percent in July, and are 18.1 percent below a year ago. The median price in the South was $179,300, down 3.5 percent from June 2007. New Home Sales According to the U.S. Census Bureau, sales of new one family houses in July increased 2.4 percent against the revised June rate. These sales at a seasonally adjusted rate of 515,000, were 35.3 percent below the July 2007 estimate. At the current rate of sale, the number of new homes for sale at the end of July represented a 10.1-month supply. Housing Starts Privately owned housing starts in July were at a seasonally adjusted annual rate of 965,000, according to the U.S. Census Bureau. This was 11 percent below the revised June rate and 29.6 percent below the revised July 2007 rate. Single-family starts in July were 2.9 percent below the June estimate after falling 5.3 percent in June compared to May. Consumer Prices The Bureau of Labor Statistics reported the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July, before seasonal adjustment. The July level of 219.964 (1982-84=100) was 5.6 percent higher than in July 2007. The report indicated that on a seasonally adjusted basis, the CPI-U advanced 0.8 percent in July, following a 1.1 percent increase in June. The index for energy rose sharply for the third straight month, increasing 4.0 percent in July and accounting for about half of the overall increase in the all items index. The food index rose 0.9 percent in July after rising 0.8 percent in June. The index for food at home rose 1.2 percent in July after rising 1.0 percent in June. The index for all items less food and energy increased 0.3 percent in July, the second straight such increase. The indexes for apparel and for recreation increased more sharply than in June, but the indexes for shelter and medical care rose more slowly. During the first seven months of 2008, the CPI-U rose at a 6.2 percent seasonally adjusted annualized rate (SAAR). This compares with a 4.1 percent increase for the 12 months ending December 2007. The energy index rose at a 33.1 percent SAAR in the first seven months of 2008 after increasing 17.4 percent in 2007. Gasoline prices increased at a 35.2 percent SAAR in 2008 after a 29.6 percent increase in 2007, while natural gas prices rose at a 71.3 percent SAAR after decreasing 0.4 percent in 2007. The food index has increased at a 7.6 SAAR for the first seven months of 2008 after increasing 4.9 percent in 2007. Excluding food and energy, the CPI-U has advanced at a 2.5 percent SAAR following a 2.4 percent increase in 2007. Retail Sales The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $384.6 billion, a decrease of 0.1 percent from the previous month and 2.6 percent above July 2007. Total sales for the May through July 2008 period were up 2.7 percent from the same period a year ago. Retail trade sales were down 0.1 percent from June 2008, but were 2.6 percent above last year. Gasoline station sales were up 24.6 percent from July 2007 and sales of nonstore retailers were up 7.7 percent from last year. Sales at furniture and home furnishings stores declined 2.5 percent comparing July 2008 to July 2007 (4.8 percent decline on an adjusted basis). For the seven months ended July 2008, sales at these stores were down 4.7 percent. For the three months ended July 2008, sales at these stores were down 4.9 percent compared to the same three months last year. Durable Goods Orders and Factory Shipments The U.S. Census Bureau reported that new orders for manufactured durable goods in July increased $2.9 billion or 1.3 percent to $219.3 billion. This was the third consecutive monthly increase and followed a 1.3 percent June increase. Excluding transportation, new orders increased 0.7 percent. Excluding defense, new orders increased 2.8 percent. Shipments of manufactured durable goods in July, up three of the last four months, increased $5.3 billion or 2.5 percent to $218.3 billion. This followed a 0.9 percent June increase. The Census Bureau detailed report indicated the shipments of furniture and related products in June were 4 percent below June of 2007 and were 5.0 percent below last year on a year-to-date basis, lower than the 8 percent reported by our participants. This report indicated the new orders were off 5.3 percent year-to-date. But keep in mind that their report included furniture and “related products.” Summary Our records indicate that shipments have declined compared to the same month the previous year since June of 2006, some 24 months of monthly declines. As we previously reported, the declines seem to be at all size companies as well as various price points. The increase in the Consumer Confidence Index is somewhat encouraging. The recent declines in gas prices at the pumps have also encouraged consumers, although prices are still very high. When you stop to fill up and the person in front of you has put in $5.00 to get less than 1 ½ gallons, it really makes you realize how tough this is for many consumers. Some good news is that Hurricane Gustav did not turn out to be the killer that Katrina was so hopefully we will not see a major surge in gas prices. Recent conversations have indicated some improved business conditions in furniture. Certainly no one is getting too excited, but there are some signs of relief at least in some cases. The recent closings of a few retailers are of concern, but any uptick in business is good. If the housing market continues to steady itself and more homes are sold with mortgages people can actually afford, we may get more furniture sales yet. We continue to remind people that there is still a great deal of furniture being sold. But with more suppliers of furniture and more channels of distribution, a slight decline in sales can mean that each supplier or retailer may be losing sales as much because of the supply chains, as the overall decline in sales. ___________________________ 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.