Monthly Results
New Orders
February new orders were basically even with February 2010 orders according to our recent survey of residential furniture manufacturers and distributors. In February 2010, new orders were 13 percent higher than February 2009 so the February comparison was to a reasonably good month last year. New orders were 22 percent higher than orders in January. This comparison is somewhat normal for January to February as last year February orders were 23 percent higher than January.
Year-to-date, new orders were even with the first two months of last year when orders were up 9 percent over the first two months of 2009. Some 44 percent of the participants reported increased orders year-to-date compared to 41 percent for the month.
Shipments and Backlogs
Shipments for the month of February were 2 percent lower than February 2010 when they were 4 percent higher than February 2009. There was a 7 percent increase over January. Interestingly, some 52 percent of the participants reported an increase in shipments. As we have discussed before, shipments can lag orders based on timing of orders or especially timing of receipt of imported products.
Year-to-date, shipments are now even with the first two months of last year, when they were up 5 percent over the same two months of 2009. Almost half (49 percent) of the participants reported increases in shipments for the two months.
Backlogs increased 12 percent over January with orders exceeding shipments in dollar terms. Backlogs were 5 percent lower than February 2010, compared to a 6 percent decline in the January to January results.
Receivables and Inventories
Receivables in February 2011 were even with February 2010, in line with the year-to-date shipments. Receivable levels continue to be in line with shipments.
Inventory levels were 15 percent higher than last February, compared to a 12 percent increase reported last month. The good news is that inventories actually fell 3 percent from January. The increase over last year continues to reflect the fact that as business picked up in the early part of last year, inventories were a bit too lean. So in anticipation of improved business, inventories were beefed up (particularly by importers). Then in the latter part of the year, business fell off again for many, so inventories were too high.
Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees was about even with January and was down 2 percent from last February. Last year, the number of employees in February was down 5 percent compared to February 2009.
Payrolls were up 2 percent over February 2010 reflecting higher orders for February. Year-to-date, payrolls were 2 percent higher than last year at this time, when they were 3 percent lower than the first two months of 2009.
National
Consumer Confidence
According to the Conference Board, the Consumer Confidence Index®, which had decreased in March, improved in April. The Index now stands at 65.4 (1985=100), up from 63.8 in March. The Present Situation Index increased to 39.6 from 37.5. The Expectations Index rose to 82.6 from 81.3.
Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence, which had declined sharply in March, posted a modest gain in April. Consumers’ short-term outlook improved slightly, suggesting that the uncertainty expressed last month is easing. Inflation expectations, which had spiked, retreated somewhat in April. Although confidence remains weak, consumers’ assessment of current conditions gained ground for the seventh straight month, a sign that the economic recovery continues.”
Consumers’ appraisal of present-day conditions, although mixed, improved in April. Those stating conditions are “good” decreased slightly to 14.8 percent from 15.0 percent. Those stating business conditions are “bad” also declined slightly to 36.4 percent from 36.6 percent. Consumers’ assessment of the labor market was more favorable than last month. Those saying jobs are “hard to get” declined to 41.8 percent from 44.4 percent, while those stating jobs are “plentiful” increased to 5.2 percent from 4.6 percent.
Consumers’ short-term outlook, which had soured in March, improved moderately in April. While those expecting business conditions to improve over the next six months declined to 18.8 percent from 20.8 percent, those anticipating business conditions to worsen decreased to 14.2 percent from 15.5 percent. Consumers were mixed about the labor market outlook for the next six months. Those expecting more jobs in the months ahead declined to 17.5 percent from 19.6 percent, while those anticipating fewer jobs declined to 19.0 percent from 20.5 percent. The proportion of consumers expecting an increase in their incomes improved to 16.7 percent from 15.2 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 1.8 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 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 federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports, a deceleration in PCE, a larger decrease in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by a sharp upturn in private inventory investment.
Motor vehicle output added 1.40 percentage points to the first-quarter change in real GDP after subtracting 0.27 percentage point from the fourth-quarter change. Final sales of computers added 0.12 percentage point to the first-quarter change in real GDP after adding 0.35 percentage point to the fourth-quarter change.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. increased again in March, according to their latest release. The interest rate spread, building permits, and supplier deliveries made large positive contributions to the index this month, more than offsetting the sharp decline in consumer expectations. The six-month change in the index stands at 3.8 percent (a 7.8 percent annual rate), up from 1.2 percent (a 2.4 percent annual rate) for the previous six months. In addition, the strengths among the leading indicators have remained fairly widespread in recent months.
The Conference Board Coincident Economic Index® (CEI) for the U.S., a measure of current economic activity, also continued to increase in March. The index rose 1.5 percent (a 3.0 percent annual rate) between September 2010 and March 2011, modestly faster than the growth of 1.1 percent (a 2.2 percent annual rate) for the previous six months. In addition, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months.
Housing
Existing-Home Sales
Sales of existing-home sales rose in March, continuing an uneven recovery that began after sales bottomed last July, according to the National Association of Realtors® (NAR).
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 3.7 percent to a seasonally adjusted annual rate of 5.10 million in March from an upwardly revised 4.92 million in February, but are 6.3 percent below the 5.44 million pace in March 2010. Sales were at elevated levels from March through June of 2010 in response to the home buyer tax credit.
Single-family home sales rose 4.0 percent to a seasonally adjusted annual rate of 4.45 million in March from 4.28 million in February, but are 6.5 percent below the 4.76 million level in March 2010. The median existing single-family home price was $160,500 in March, down 5.3 percent from a year ago.
Lawrence Yun, NAR chief economist said, he expects the improving sales pattern to continue. “Existing-home sales have risen in six of the past eight months, so we’re clearly on a recovery path,” he said. “With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments as a percent of income have been at record lows.”
NAR’s housing affordability index shows the typical monthly mortgage principal and interest payment for the purchase of a median-priced existing-home is only 13 percent of gross household income, the lowest since records began in 1970.
“Although home sales are coming back without a federal stimulus, sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago, before the loose lending practices that created the unprecedented boom and bust cycle,” Yun explained.
A parallel NAR practitioner survey shows first-time buyers purchased 33 percent of homes in March, compared with 34 percent of homes in February; they were 44 percent in March 2010.
Total housing inventory at the end of March rose 1.5 percent to 3.55 million existing-homes available for sale, which represents an 8.4-month supply at the current sales pace, compared with a 8.5-month supply in February.
Regionally, existing-home sales in the Northeast rose 3.9 percent to an annual level of 800,000 in March but are 12.1 percent below March 2010. The median price in the Northeast was $232,900, down 3.0 percent from a year ago.
Existing-home sales in the Midwest increased 1.0 percent in March to a pace of 1.06 million but are 13.1 percent lower than a year ago. The median price in the Midwest was $126,100, which is 7.1 percent below March 2010.
In the South, existing-home sales rose 8.2 percent to an annual level of 1.99 million in March but are 1.0 percent below March 2010. The median price in the South was $138,200, down 6.6 percent from a year ago.
Existing-home sales in the West slipped 0.8 percent to an annual pace of 1.25 million in March and are 3.1 percent below a year ago. The median price in the West was $192,100, which is 11.2 percent lower than March 2010.
New Residential Sales
Sales of new single-family houses in March 2011 were at a seasonally adjusted annual rate of 300,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 11.1 percent above the revised February rate of 270,000, but was 21.9 percent below the March 2010 estimate of 384,000.
The median sales price of new houses sold in March 2011 was $213,800; the average sales price was $246,800. The seasonally adjusted estimate of new houses for sale at the end of March was 183,000. This represents a supply of 7.3 months at the current sales rate.
Compared to March 2010, year-to-date sales were down 15.8 percent in the Northeast, 32.2 percent in the Midwest, 12.8 percent in the South and 21.4 percent in the West. Overall, sales for the U.S. were down 18.0 percent. Approximately 72 percent of March 2011 sales were in the $299,999 and under price range.
Housing Starts
According to the joint release of the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, privately-owned housing starts in March were at a seasonally adjusted annual rate of 549,000. This was 7.2 percent above the revised February estimate of 512,000, but was 13.4 percent below the March 2010 rate of 634,000.
Single-family housing starts in March were at a rate of 422,000; this was 7.7 percent above the revised February figure of 392,000. For March compared to March 2010, single-family starts were down 25.3 percent with all districts down from 23.1 percent to 30.1 percent.
Retail Sales
The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $389.3 billion, an increase of 0.4 percent from the previous month, and 7.1 percent above March 2010. Total sales for the January through March 2011 period were up 8.1 percent from the same period a year ago.
Retail trade sales were up 0.3 percent from February 2011, and 7.3 percent above last year. Gasoline stations sales were up 16.7 percent from March 2010 and nonstore retailers sales were up 12.4 percent from last year.
Sales on an adjusted basis were up 2.7 percent over March 2010 for furniture and home furnishings stores. Year-to-date, sales at these stores are now up 0.6 percent over the first quarter of 2010. Of the 13 categories the report tracks, furniture and home furnishings stores were second lowest in growth for the quarter, second to a 0.1 percent increase at electronics and appliances stores. Auto and other motor vehicle dealers were up a whopping 16.6 percent for the quarter.
Consumer Prices
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in March on a seasonally adjusted basis. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment.
Gasoline and food prices continued to rise and together accounted for almost three quarters of the seasonally adjusted all items increase in March. The gasoline index posted its ninth consecutive increase and has now risen 14.4 percent over the last three months. The household energy index rose as well, with advances in the fuel oil and electricity indexes more than offsetting a decline in the index for natural gas. The food at home index continued to accelerate in March, rising 1.1 percent as all six major grocery store food groups increased.
The report indicated that the index for all items less food and energy rose 0.1 percent in March, a smaller increase than in the previous two months. The index for shelter rose slightly, as did the index for medical care. Several transportation indexes posted significant increases, including new vehicles, used cars and trucks, and airline fares. In contrast, the indexes for apparel and for household furnishings and operations both declined in March.
The all items index rose 2.7 percent in the last 12 months, the largest increase since December 2009. The energy index has now risen 15.5 percent over the last 12 months, with the gasoline index up 27.5 percent. The food index has risen 2.9 percent with the food at home index up 3.6 percent. The index for all items less food and energy has increased 1.2 percent with the shelter index up 0.9 percent.
Employment
According to the Bureau of Labor Statistics, nonfarm payroll employment increased by 216,000 in March, and the unemployment rate was little changed at 8.8 percent. Job gains occurred in professional and business services, health care, leisure and hospitality, and mining. Employment in manufacturing continued to trend up.
The number of unemployed persons (13.5 million) changed little in March. The labor force was little changed over the month. Since November 2010, the jobless rate has declined by 1.0 percentage point.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in March increased $5.0 billion or 2.5 percent, according to the U.S. Census Bureau. This increase, up three consecutive months, followed a 0.7 percent February increase. Excluding transportation, new orders increased 1.3 percent. Excluding defense, new orders increased 2.3 percent.
Transportation equipment, also up three consecutive months, had the largest increase at 5.9 percent.
Shipments of manufactured durable goods in March, up five consecutive months, increased $3.7 billion or 1.8 percent. This followed a 0.5 percent February increase.
Transportation equipment, up four consecutive months, had the largest increase at 3.3 percent.
According to the U.S. Census Bureau, shipments of furniture and related products increased 6.1 percent over February 2010 and were up 7.3 percent. This report indicated that orders in this category were up 5.2 percent for the two months.
Consumer Credit
Consumer credit increased at an annual rate of 3¾ percent in February 2011. Nonrevolving credit increased at an annual rate of 7¾ percent, while revolving credit decreased at an annual rate of 4 percent.
Summary
While new orders and shipment results were not as positive as we would like to see, considering we were comparing to some decent results last year, the results were not all that bad. Also, considering how bad the weather has been so far this year, the results really would not seem to be bad at all.
We heard at Market that some retailers in the Northeast actually were not able to open some days for the first time in recent memory. Even when some were open, that kind of weather is not conducive to furniture shopping.
On a bright note, the recent High Point Market appeared to be one of the best in quite some time. While order writing is not what it used to be, we heard several reports that order writing was the highest since 2007.
While registrations were reported to be down, most of the exhibitors we talked to at Market were pleased with attendance. The new Market dates also seem to be working well as attendance seems a bit more spread out now. While that may not create the excitement of a real opening day, we hear that people like having more time with their customers.
Overall, while most markets seem to have a good “mood,” just because people are here to see friends and good product, this “mood” really seemed different. We hope that in the weeks to come, commitments can be translated to orders due to continued good business at retail.
The retail results for March were encouraging in that the furniture and home furnishings stores results were enough to turn the year-to-date results from a negative to a positive.
The report from NAR on existing-home sales had what appears to be really good news for home furnishings. As we noted earlier, the report said the typical monthly mortgage payment for the purchase of a median-priced existing-home is only 13 percent of gross household income, the lowest since records began in 1970.
This should mean that there are more disposable dollars for consumers to spend. While some is probably saved and clearly some is for gas and other staples, hopefully some will be left over for furniture.
On the bad news side, the recent tornados have been devastating to a large portion of the country. Our thoughts and prayers go out to all of those who had damage to homes and factories. We especially send our thoughts to the family and friends of Lynn Davis. He will certainly be missed.
This has been a really tough year for so many people. While we can gripe about snow, usually we can get by with not too much trouble. Flooding and tornados are different animals. Let’s hope the worst is behind us and all of the people who have damage or lost loved ones can get their lives back together soon.
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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.