Monthly Results
New Orders
According to our recent survey of furniture manufacturers and distributors, new orders for May 2011 were basically even with orders received in May 2010. This followed an increase in orders written in April of a 16 percent increase over April 2010. As we noted in last month’s report, the dates of the April market in High Point were thought to have an impact on the April results in that the 2011 market was much earlier in the month. This, we thought, allowed more market orders to be written in April 2011 than in April 2010.
Adding both April and May together, the results were still very positive for both months combined. April and May 2011 new orders were 8 percent higher than the same two months a year ago.
Year-to-date, new orders were up 5 percent, down from 7 percent through April (but again due, we think, to early market orders). Some 64 percent of the participants are now reporting increases in orders year-to-date, down slightly from 71 percent reporting last month. Through May 2010, new orders were up 10 percent over 2009 orders, so the 5 percent increase in 2011 is comparing to some reasonable results last year.
Shipments and Backlogs
Shipments were up 6 percent over May of 2010 and up 8 percent over April 2011. Some 64 percent of the participants reported increases in shipments over May 2010. Year-to-date, shipments remained 3 percent ahead of the same period in 2010, with approximately 60 percent of the participants reporting increased shipments year-to-date. This compared to 56 percent of the participants last month.
The 3 percent increase year-to-date compares to a 6 percent increase reported last year. We expect there may be some market orders that will take some time to get through the system.
With shipments exceeding orders in May, backlogs fell 2 percent from April, but remained 3 percent above May 2010. This compared to a 6 percent increase in backlog reported last month.
Receivables and Inventories
Receivable levels increased only 3 percent in May compared to May 2010, much more in line with the 3 percent increase in year-to-date shipments. Last month receivables were up 8 percent which was not in line, but we assumed it was a timing issue. Apparently it was.
Inventories in May 2011 were 11 percent higher than a year ago. Last month inventories were up 14 percent. While the inventory levels appear to be somewhat high, we remember that many companies got caught short on inventories in the first part of the year in 2010 as orders and shipments had exceeded expectations. We expect inventory levels to become a bit more in line as the year goes on. Yet, inventories will still need to be watched.
Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees stayed about even with April levels, though they were down about 2 percent from May 2010 results. This was in line with the April to April comparisons. May 2010 employee levels were 1 percent higher than May 2009.
Factory and warehouse payrolls were up 6 percent from April and up 1 percent from last May. Year-to-date, these payrolls were up 2 percent over the same period a year ago, the same as they were in April. Last year, payrolls were up 10 percent over the same period in 2009.
National
Consumer Confidence
According to The Conference Board, the Consumer Confidence Index®, which had declined in June, improved slightly in July. The Index now stands at 59.5 (1985=100), up from 57.6 in June. The Present Situation Index decreased to 35.7 from 36.6. The Expectations Index rose to 75.4 from 71.6 last month.
Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence posted a modest gain in July, the result of an improvement in consumers’ short-term outlook. Consumers’ appraisal of current business and employment conditions, however, was less favorable as concerns about the labor market continue to weigh on consumers’ attitudes. Overall, consumers remain apprehensive about the future, but some of the concern expressed last month has abated.”
Consumers’ assessment of current day conditions weakened further in July. Those stating business conditions are “good” decreased to 13.4 percent from 13.7 percent, while those claiming business conditions are “bad” increased to 39.0 percent from 38.4 percent. Consumers’ appraisal of the job market was also less favorable. Those claiming jobs are “hard to get” increased to 44.1 percent from 43.2 percent, while those stating jobs are “plentiful” remained unchanged at 5.1 percent.
Consumers’ short-term outlook improved moderately in July. The proportion of consumers expecting business conditions to improve over the next six months increased to 17.7 percent from 16.5 percent. However, those anticipating business conditions will worsen also increased, to 15.2 percent from 14.9 percent.
Leading Economic Indicators
According to The Conference Board, the Leading Economic Index® (LEI) for the U.S. increased in June, following May’s rebound. Real money supply and the interest rate spread made large positive contributions to the index this month, more than offsetting the negative contributions from consumer confidence and stock prices. The six-month change in the index has continued to moderate ― to 2.7 percent (a 5.4 percent annual rate) in the period through June 2011, down from 3.2 percent (a 6.5 percent annual rate) for the previous six months. Additionally, the strengths and weaknesses among the leading indicators have been balanced in recent months.
The Conference Board Coincident Economic Index® (CEI) for the U.S., a measure of current economic activity, continued to increase in June. The index rose 0.8 percent (a 1.6 percent annual rate) between December 2010 and June 2011, slightly below the growth of 0.9 percent (a 1.8 percent annual rate) for the previous six months. All of the four coincident indicators have advanced over the past six months.
Five of the ten indicators that make up The Conference Board LEI for the U.S. increased in June. The positive contributors – beginning with the largest positive contributor – were real money supply, the interest rate spread, building permits, the index of supplier deliveries (vendor performance), and manufacturers’ new orders for consumer goods and materials. The negative contributors – beginning with the largest negative contributor – were stock prices, the index of consumer expectations, average weekly manufacturing hours, and manufacturers’ new orders for nondefense capital goods. The average weekly initial claims for unemployment insurance (inverted) held steady in June.
Housing
Existing-Home Sales
Existing-home sales eased in June as contract cancellations spiked unexpectedly, although prices were up slightly, according to the National Association of Realtors® (NAR).
Sales gains in the Midwest and South were offset by declines in the Northeast and West. Single-family home sales were stable while the condo sector weakened.
Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 0.8 percent to a seasonally adjusted annual rate of 4.77 million in June from 4.81 in May, and remain 8.8 percent below the 5.23 million unit level in June 2010, which was the scheduled closing deadline for the home buyer tax credit.
Single-family home sales were unchanged at a seasonally adjusted annual rate of 4.24 million in June, but are 7.4 percent below a 4.58 million pace in June 2010. The median existing single-family home price was $184,600 in June, up 0.6 percent from a year ago.
Lawrence Yun, NAR chief economist, said this is an uneven recovery. “Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month,” he said. “The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year.”
Yun cited other factors in the sales performance. “Pending home sales were down in April but up in May, so we may be seeing some of that mix in closed sales for June. However, economic uncertainty and the federal budget debacle may be causing hesitation among some consumers or lenders.”
The national median existing-home price for all housing types was $184,300 in June, up 0.8 percent from June 2010. Distressed homes foreclosures and short sales generally sold at deep discounts accounted for 30 percent of sales in June, compared with 31 percent in May and 32 percent in June 2010.
Total housing inventory at the end of June rose 3.3 percent to 3.77 million existing homes available for sale, which represents a 9.5-month supply at the current sales pace, up from a 9.1-month supply in May.
Regionally, existing-home sales in the Northeast fell 5.2 percent to an annual pace of 730,000 in June and were 17.0 percent below June 2010. The median price in the Northeast was $261,000, up 3.1 percent from a year ago.
Existing-home sales in the Midwest rose 1.0 percent in June to a pace of 1.04 million and were 14.0 percent below a year ago. The median price in the Midwest was $147,700, down 5.3 percent from June 2010.
In the South, existing-home sales increased 0.5 percent to an annual level of 1.86 million in June but were 5.6 percent below June 2010. The median price in the South was $159,100, down 0.1 percent from a year ago.
Existing-home sales in the West declined 1.7 percent to an annual pace of 1.14 million in June and were 2.6 percent below a year ago. The median price in the West was $240,400, up 9.5 percent from June 2010.
New Residential Sales
Sales of new single-family houses in June 2011 were at a seasonally adjusted annual rate of 312,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 1.0 percent below the revised May rate of 315,000, but was 1.6 percent above the June 2010 estimate of 307,000.
The median sales price of new houses sold in June 2011 was $235,200; the average sales price was $269,000. The seasonally adjusted estimate of new houses for sale at the end of June was 164,000. This represents a supply of 6.3 months at the current sales rate.
As with existing-home sales, sales of new residential properties were mixed among the regions. Sales in the Northeast were down 15.8 percent from May 2011. Sales were also down in the West by 12.7 percent. Sales were up 9.5 percent in the Midwest and up 3.4 percent in the South.
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 June were at a seasonally adjusted annual rate of 629,000. This was 14.6 percent above the revised May estimate of 549,000 and was 16.7 percent above the June 2010 rate of 539,000.
Single-family housing starts in June were at a rate of 453,000; this was 9.4 percent above the revised May figure of 414,000.
Single unit starts were up 2.6 percent in the Northeast, 22.5 percent in the Midwest, 8.6 percent in the South and 3.5 percent in the West comparing June to May. June 2011 to June 2010 comparisons were a negative 20.4 percent in the Northeast and a negative 6.4 percent in the West, while there was a positive 22.5 percent in the Midwest and 0.8 percent in the South.
Retail Sales
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $387.8 billion, an increase of 0.1 percent from the previous month, and 8.1 percent above June 2010. Total sales for the April through June 2011 period were up 7.7 percent from the same period a year ago. The April to May 2011 percent change was revised from -0.2 percent to -0.1 percent.
Retail trade sales were up 0.2 percent from May 2011, and 8.5 percent above last year. Gasoline stations sales were up 23.6 percent from June 2010 and nonstore retailers sales were up 12.3 percent from last year.
Adjusted sales at furniture and home furnishings stores were off 0.8 percent from May to June but were up 0.5 percent from June 2010. Year-to-date, sales at these stores were up 0.4 percent. Only electronics and appliance stores, at a negative 0.2 percent growth, were below sales at furniture and home furnishings stores.
Consumer Prices
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in June on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 3.6 percent before seasonal adjustment.
The gasoline index declined sharply in June, falling 6.8 percent. While this decrease was the major factor in the seasonally adjusted decline in the all items index, the index for household energy declined as well. In contrast, the index for all items less food and energy increased 0.3 percent for the second consecutive month. The indexes for shelter, apparel, new vehicles, used cars and trucks, and medical care all continued to rise in June.
The food index increased as well, although the 0.2 percent rise was the smallest of the year. The index for food at home increased 0.2 percent, with major grocery store food groups mixed.
The 12 month change in the all items index remained at 3.6 percent. The change in the index for all items less food and energy edged up to 1.6 percent, its highest level since January 2010. The food index has increased 3.7 percent over the last 12 months while the energy index rose 20.1 percent.
Employment
Nonfarm payroll employment essentially unchanged in June (+18,000), and the unemployment rate was little changed at 9.2 percent, according to the latest report from the U.S. Bureau of Labor Statistics. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down.
The number of unemployed persons (14.1 million) were essentially unchanged over the month. Since March, the number of unemployed persons has increased by 545,000, and the unemployment rate has risen by 0.4 percentage point.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in June decreased $4.0 billion or 2.1 percent to $192.0 billion, according to the U.S. Census Bureau. This decrease, down two of the last three months, followed a 1.9 percent May increase. Excluding transportation, new orders increased 0.1 percent. Excluding defense, new orders decreased 1.8 percent.
Transportation equipment, also down two of the last three months, had the largest decrease, at 8.5 percent to $45.4 billion. This was due to nondefense aircraft and parts which decreased $2.8 billion.
Shipments of manufactured durable goods in June, up six of the last seven months, increased $1.0 billion or 0.5 percent to $196.0 billion. This followed a 0.5 percent May increase.
Machinery, up four of the last five months, had the largest increase, $0.7 billion or 2.6 percent to $29.1 billion.
According to the U.S. Census Bureau, new orders in the furniture and related products category were up 5.7 percent over May 2010 and down slightly from April. Year-to-date, this category is showing a 9.1 percent increase in orders for the first five months of 2011. Shipments in the category are up 8.9 percent. The “related products” portion of this category must be up more than “furniture” according to our results.
Summary
The results for the two months ended May 2011 were very positive. While May orders were flat, we compared both April and May in order to account for earlier market dates. This resulted in almost an 8 percent increase in orders over the two months.
According to the government reports, retail sales in furniture and home furnishings stores remained a poor performer compared to all 13 categories that are tracked for the 6 months ended June 30, 2011. Sales at auto and other motor vehicle dealers were up 12.9 percent for the six-month period, so at least sales for some large ticket items are improving. But, we know that financing has something to do with that overall picture.
We continue to hear the same story from most that we talk to. Business (orders) will pick up for a few days or even a week, then fall off again. We continue to believe that consumers’ confidence will not improve until all the negative news from Washington ends (or will it ever?).
As we write this, Congress and the President remain in a stalemate over the debt ceiling and budget problems. Hopefully, they will do what is right for the country and forget politics. The stakes are extremely high for us and our country to have politicians do something stupid.
If we can get this behind us, hopefully consumer confidence will improve.
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