Monthly Furniture Insights Report From Smith Leonard
Furniture Industry News Update -
Furniture World Magazine
New Furniture Orders
New orders in September 2012 were up 10 percent over September 2011, according to our latest survey of residential furniture manufacturers and distributors. We believe some of the monthly increase may have been related to timing of some of the orders as several participants reported significant double digit increases. Only 53 percent of the participants reported increased shipments.
For the first three quarters, new orders remained up 5 percent over the same period a year ago. Approximately 65 percent of the participants have reported increased orders year-to-date, the same as reported last month. In 2011 through September, new orders were up 6 percent year-to-date.
Furniture Shipments and Backlogs
Shipments in September were down 1 percent from September a year ago. Again, we think this was probably also a timing issue. In September 2012, there were only 19 working days compared to 21 a year ago, so that probably impacted the shipping results.
Year-to-date, shipments were up 7 percent, down slightly from the 8 percent reported last month. Through September 2011, shipments were up 3 percent over the same period in 2010. Approximately 63 percent of the participants reported increased shipments year-to-date.
As would be expected, with orders exceeding shipments for the month, backlogs rose 9 percent over August. Backlogs in September were 13 percent higher than September 2011.
Furniture Receivables and Inventories
With shipments down 1 percent from last year, receivables also fell 1 percent from last September. Unfortunately, shipments fell 3 percent from August, yet receivables increased 3 percent from August levels. Since receivable levels have been in line most of the year, we expect that this month’s unusual results were a result of timing.
Inventories were up 4 percent from last year September, much more in line compared to the 9 percent reported last month. Inventories actually fell 5 percent from August. So it appears that inventories are being controlled based on current volume levels.
Furniture Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees was up 4 percent over September 2011 levels and up 1 percent over August 2012. Last month, the number of employees was up 3 percent. These results also seem to be in line with current conditions.
Factory and warehouse payrolls were flat with September 2011 but up 3 percent over August. Year-to-date, factory and warehouse payrolls are up 6 percent over last year down from a 7 percent increase we reported last month.
The Conference Board Consumer Confidence Index®, which had increased in October, posted a moderate increase in November. The Index now stands at 73.7 (1985=100), up from 73.1 in October. The Present Situation Index was virtually unchanged at 56.6 versus 56.7 last month. The Expectations Index rose to 85.1 from 84.0 last month.
Lynn Franco, Director of Economic Indicators at The Conference Board said: “The Consumer Confidence Index increased in November and is now at its highest level in more than four and a half years (76.4 Feb. 2008). This month’s moderate improvement was the result of an uptick in expectations, while consumers’ assessment of present-day conditions continues to hold steady. Over the past few months, consumers have grown increasingly more upbeat about the current and expected state of the job market, and this turnaround in sentiment is helping to boost confidence.”
Consumers’ appraisal of current conditions was relatively unchanged in November. Those saying business conditions are “good” declined to 14.4 percent from 16.5 percent, while those saying business conditions are “bad” decreased to 31.5 percent from 33.0 percent. Consumers’ assessment of the labor market improved. Those claiming jobs are “plentiful” increased to 11.2 percent from 10.4 percent, while those claiming jobs are “hard to get” held steady at 38.8 percent.
Thomson Reuters/University of Michigan Surveys of Consumers
According to the Surveys of Consumers Thomson Reuters University of Michigan, consumer confidence remained largely unchanged from last month at its highest level in five years. The report noted that when asked to identify any recent economic news, consumers more frequently made unfavorable references to potential changes in future federal tax and spending programs as well as the inability of the political parties to reach a timely settlement. There have only been five other surveys during the past half century in which more consumers spontaneously mentioned their uncertainty about government policies.
Interestingly, the past occurrences were also related to taxes, spending, and the federal deficit: Clinton’s deficit reduction program in 1993 and last summer’s debt ceiling debate which prompted a drop in the Sentiment Index to 55.8, the fourth lowest level recorded in the long history of the surveys. While consumers remain optimistic, that optimism is contingent on the promise of no higher taxes, except on the wealthy.
Surveys of Consumers chief economist, Richard Curtin said: “The gains in confidence ended in late November as consumers became more uncertain about when and how the fiscal cliff will be bridged. While they had anticipated a last minute settlement, some consumers are beginning to doubt whether that will happen before higher tax rates take effect in January. While a resolution just before year-end could reverse any future spending declines, it would nonetheless diminish holiday spending. Moreover, consumers do not make a distinction between federal income and payroll taxes, so any settlement that excludes an extension of the payroll tax cut could reduce optimism starting in early January.”
The report also noted “More households reported gains in their personal finances in the November survey than any other time since March of 2008. Although a slightly larger number reported worsening finances, this represents a large gain from a year ago when worsening finances were reported twice as frequently as an improving financial situation.”
Anticipated gains in the economy meant that consumers held much more favorable job expectations. The survey recorded the most favorable outlook for the unemployment rate since 1984. Nearly one-in-three consumers expected a lower unemployment rate during the year ahead in both the October and November 2012 surveys.
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 2.7 percent in the third quarter of 2012, (that is, from the second quarter to the third quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by negative contributions from nonresidential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased slightly.
The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a deceleration in imports, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by a downturn in nonresidential fixed investment and decelerations in exports and in PCE.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.2 percent in October to 96.0 (2004=100), following a 0.5 percent increase in September, and a 0.4 percent decline in August, according to the Conference Board.
Ataman Ozyildirim, economist at The Conference Board said: “The U.S. LEI increased slightly in October, the second consecutive increase. The LEI still points to modestly expanding economic activity in the near term. Over the last six months, improvements in the residential construction and financial components of the LEI have offset weak consumer expectations, manufacturing new orders and labor market components. Meanwhile, the coincident economic index also increased slightly in October.”
Ken Goldstein, economist at The Conference Board said: “Based on current trends, the economy will continue to expand modestly through the early months of 2013. Hurricane Sandy, which is not yet fully reflected in the LEI, will likely adversely affect consumer spending and home building in the short-term, but it’s too soon to gauge the net impact. In addition, the outcome of the fiscal cliff debates is another factor which could alter the outlook.”
The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.1 percent in October to 104.8 (2004=100), following a 0.2 percent increase in September, and a 0.4 percent decline in August.
The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in October to 117.1 (2004=100), following a 0.1 percent decline in September, and a 0.4 percent increase in August.
Sales of existing-homes increased in October, even with some regional impact from Hurricane Sandy, while home prices continued to rise due to lower levels of inventory supply, according to the National Association of Realtors® (NAR).
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.1 percent to a seasonally adjusted annual rate of 4.79 million in October from a downwardly revised 4.69 million in September, and were 10.9 percent above the 4.32 million-unit level in October 2011.
Single-family home sales rose 1.9 percent to a seasonally adjusted annual rate of 4.22 million in October from 4.14 million in September, and were 9.6 percent above the 3.85 million-unit pace in October 2011. The median existing single-family home price was $178,700 in October, which is 10.9 percent higher than a year ago.
Lawrence Yun, NAR chief economist, said there was some impact from Hurricane Sandy. “Home sales continue to trend up and most October transactions were completed by the time the storm hit, but the growing demand with limited inventory is pressuring home prices in much of the country,” he said. “We expect an impact on Northeastern home sales in the coming months from a pause and delays in store-impacted regions.”
The national median existing-home price for all housing types was $178,600 in October, which was 11.1 percent above a year ago. This marks eight consecutive monthly year-over-year increases, which last occurred from October 2005 to May 2006.
“Rising home prices have already resulted in a $760 billion growth in home equity during the past year,” Yun said. “Given that each percentage point of price appreciation translates into an additional $190 billion in home equity, we could see close to a $1 trillion gain next year.”
Total housing inventory at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, which represents a 5.4-month supply at the current sales pace, down from 5.6 months in September, and is the lowest housing supply since February 2006 when it was 5.2 months. Listed inventory is 21.9 percent below a year ago when there was a 7.6-month supply.
Regionally, existing-home sales in the Northeast fell 1.7 percent to an annual pace of 580,000 in October but were 13.7 percent above October 2011. The median price in the Northeast was $232,600, which was 4.6 percent above a year ago.
Existing-home sales in the Midwest rose 1.8 percent in October to a level of 1.11 million and were 18.1 percent above a year ago. The median price in the Midwest was $145,600, up 10.6 percent from October 2011.
In the South, existing-home sales increased 2.1 percent to an annual pace of 1.92 million in October and were 11.0 percent higher than October 2011. The median price in the South was $152,200, which was 8.2 percent above a year ago.
Existing-home sales in the West rose 4.4 percent to an annual level of 1.18 million in October and were 3.5 percent above a year ago. With much tighter inventory conditions, the median price in the West was $242,100, up 21.2 percent from October 2011.
New Residential Sales
Sales of new single-family houses in October 2012 were at a seasonally adjusted annual rate of 368,000, according to estimates released jointly by the U.S. Census Bureau News and the Department of Housing and Urban Development. This was 0.3 percent below the revised September rate of 369,000, but was 17.2 percent above the October 2011 estimate of 314,000.
The median sales price of new houses sold in October 2012 was $237,700; the average sales price was $278,900. The seasonally adjusted estimate of new houses for sale at the end of October was 147,000. This represents a supply of 4.8 months at the current sales rate.
Compared to October 2011, new house sales were up 10.5 percent in the Northeast; 17.6 percent in the Midwest; 9.3 percent in the South and 33.7 percent in the West.
According to the U.S. Census Bureau News Joint Release with the Department of Housing and Urban Development, privately-owned housing starts in October were at a seasonally adjusted annual rate of 894,000. This was 3.6 percent above the revised September estimate of 863,000 and was 41.9 percent above the October 2011 rate of 630,000. Single-family housing starts in October were at a rate of 594,000; this was 0.2 percent below the revised September figure of 595,000. Single-family housing starts were up 43.6 percent in the Midwest; 25.6 percent in the South and 77.6 percent in the West. Starts were down 11.9 percent in the Northeast.
The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $411.6 billion, a decrease of 0.3 percent from the previous month, but 3.8 percent above October 2011. Total sales for the August through October 2012 period were up 4.7 percent from the same period a year ago.
Retail trade sales were down 0.3 percent from September 2012, but 3.8 percent above last year. Gasoline stations sales were up 7.7 percent from October 2011 and nonstore retailers were up 7.2 percent from last year.
On an adjusted basis, sales at furniture and home furnishings stores were up 5.3 percent over October 2011. Sales at these stores were reported to be up 8.4 percent over the first ten months of last year.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in October on a seasonally adjusted basis, according to the report from the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 2.2 percent before seasonal adjustment.
The shelter index increased 0.3 percent, its largest increase since March 2008, and accounted for over half of the seasonally adjusted all items increase. The index for all items less food and energy rose 0.2 percent, as the rise in the shelter index and increases in the indexes for apparel and airline fare more than offset declines in the indexes for used cars and trucks, new vehicles, and recreation.
The food index increased 0.2 percent in October with the index for food at home rising 0.3 percent, its largest increase since September 2011. The energy index, which had risen sharply in August and September, declined slightly in October. Major energy component indexes were mixed, with declines in the indexes for gasoline and natural gas more than offsetting increases in the indexes for electricity and fuel oil.
Total nonfarm payroll employment increased by 171,000 in October, and the unemployment rate was essentially unchanged at 7.9 percent, according to the U.S. Bureau of Labor Statistics. Employment rose in professional and business services, health care, and retail trade.
Both the unemployment rate (7.9 percent) and the number of unemployed persons (12.3 million) were essentially unchanged in October, following declines in September.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in October increased slightly to $216.9 billion, according to the U.S. Census Bureau. This increase, up five of the last six months, followed a 9.2 percent September increase. Excluding transportation, new orders increased 1.5 percent. Excluding defense, new orders increased 0.1 percent.
Machinery, up two consecutive months, had the largest increase, $0.9 billion or 2.9 percent to $30.9 billion.
Shipments of manufactured durable goods in October, down two of the last three months, decreased $1.2 billion or 0.6 percent to $222.2 billion. This followed a 0.5 percent September increase.
Transportation equipment, also down two of the last three months, had the largest decrease, $0.8 billion or 1.3 percent to $63.5 billion. This followed a 0.7 percent September increase.
According to the government reports, shipments of furniture and related products were up 3.7 percent year-to-date while orders were up 4.2 percent.
Executive Furniture Summary (Revised)
Our latest survey of residential furniture manufacturers and distributors had a few unusual results but we believe some of the results were due to timing. New orders were up 10 percent over September a year ago, but only 53 percent of the participants reported increased orders. But those reporting increases had some significant double digit increases.
Shipments for the month were down 1 percent from last September. We also believe part of this was timing as there were only 19 working days this September versus 21 last year (Labor Day excluded in both).
So at this point of the year, we believe it is best to focus on the year-to-date results. New orders year-to-date were up 5 percent. Through September last year, new orders were up 6 percent so we seem to continue to move upward.
Shipments year-to-date were up 7 percent after an 8 percent increase reported last year. Some 63 percent of our participants are reporting increased shipments with several reporting decreases of 2 percent or less.
The elections are finally over, but we are still concerned over what (if anything) the President and Congress are going to do to avoid a crisis with the “fiscal cliff”. Surely they will do something. We think most of us, no matter the party affiliation, are ready for the President and Washington to quickly resolve the issues we face.
All of this is affecting business; hopefully we will see some sort of reasonable compromise in the next few weeks.
Surprisingly, consumer confidence seemingly continues to improve. The Conference Board’s Consumer Confidence Index reached its highest point in 4½ years. The University of Michigan report also noted their confidence index was at its highest point in 5 years. So hopefully, if we can get some resolution in Washington, confidence can continue to build.
Housing also is continuing to improve. Home prices are rising giving people a bit more confidence as well. Interest rates are low. And the GDP is showing positive signs. According to the government reports, retail sales at furniture and home furnishings stores were up 8.4 percent for the first 10 months of 2012. Overall, we have some pretty good things to feel good about. Happy Holidays to all from us at Smith Leonard.
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.
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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: email@example.com.
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