Monthly Furniture Insights Report From Smith Leonard
Furniture Industry News Update -
Furniture World Magazine
New Furniture Orders
New orders in October 2012 were up 6 percent over October 2011 orders, according to our latest survey of residential furniture manufacturers and distributors. October 2011 orders were 11 percent ahead of October 2010. September 2012 orders were 10 percent higher than September 2011.
Approximately 75 percent of our participants reported increased orders in October. This was one of the highest percentages in quite some time. The timing of the High Point Market could have had some impact in that it was earlier in October than it was in 2011.
Year-to-date, new orders remained 5 percent ahead of 2011. Approximately 72 percent of the participants have now reported increased orders, up from 65 percent last month. Again, as with the month, this was the highest percentage in quite some time on a year-to-date basis.
Furniture Shipments and Backlogs
Shipments for October were 5 percent higher than October 2011 and were even with September 2012. Shipments for the month increased for approximately 78 percent of the participants.
Year-to-date, shipments remained 7 percent ahead of the same period a year ago. Approximately 65 percent of the participants have reported increases year-to-date, up from 63 percent reporting last month.
Backlogs increased 15 percent over October 2011, up from a 13 percent increase reported last month. With orders in dollars up over shipments, backlogs increased 3 percent from September levels.
Furniture Receivables and Inventories
Receivables levels were 6 percent higher than October 2011 but were 1 percent lower than September. Both these changes seem in line with the 5 percent increase in shipments over last year and the flat September to October shipments comparison.
Inventories were up 8 percent last October, up from a 4 percent increase reported last month. Inventories were 6 percent higher than September. One month does not tell the story, so we will watch to see what happens with inventories over the next month or so.
Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees was up 4 percent over October 2011, the same as reported for September. The number of employees was flat compared to September.
Factory and warehouse payrolls were even with October a year ago and down 3 percent from September. Payrolls were up 5 percent year-to-date, down from 6 percent reported last month.
The Conference Board Consumer Confidence Index®, which had declined slightly in November, posted another decrease in December. The Index now stands at 65.1 (1985=100), down from 71.5 in November. The Expectations Index declined sharply to 66.5 from 80.9. The Present Situation Index increased to 62.8 from 57.4 last month.
Lynn Franco, Director of Economic Indicators at The Conference Board said: “Consumers’ expectations retreated sharply in December resulting in a decline in the overall Index. The sudden turnaround in expectations was most likely caused by uncertainty surrounding the oncoming fiscal cliff. A similar decline in expectations was experienced in August of 2011 during the debt ceiling discussions. While consumers are quite negative about the short-term outlook, they are more upbeat than last month about current business and labor market conditions.”
Consumers’ assessment of current conditions improved in December. Those stating business conditions are “good” rose to 17.1 percent from 14.6 percent, while those stating business conditions are “bad” decreased to 27.3 percent from 31.2 percent. Consumers’ appraisal of the labor market was mixed. Those saying jobs are “plentiful” edged down to 10.3 percent from 11.0 percent, while those saying jobs are “hard to get” declined to 35.6 percent from 37.4 percent.
Consumers’ optimism about the short-term outlook plummeted in December. The percentage of consumers expecting business conditions to improve over the next six months declined to 17.6 percent from 21.3 percent, while those expecting business conditions to worsen increased to 21.5 percent from 15.8 percent.
Thomson Reuters/University of Michigan Surveys of Consumers: According to the Thomson Reuters/ University of Michigan Surveys of Consumers, confidence plunged in December as consumers confronted the rising likelihood that political gridlock would push the country over the fiscal cliff. Consumers were more pessimistic about their future finances, and more pessimistic about the outlook for the overall economy and job prospects. One-in-four consumers spontaneously mentioned hearing about prospects for higher taxes when asked to identify what economic news they had heard, the highest level ever recorded. While the Sentiment Index is still well above the August 2011 low associated with the Congressional debate on taxes, spending and the deficit, if no resolution is reached the falloff could easily worsen in the weeks ahead. Discounted prices and record low interest rates have forestalled declines in buying attitudes but consumers are likely to reduce purchases if income or payroll taxes increase in 2013.
Surveys of Consumers chief economist, Richard Curtin said: “Confidence is lost much more easily than it can be regained, and the pessimism created by not reaching a resolution before year-end will be difficult to reverse even if a settlement is reached soon after the start of 2013. Blaming one side or the other for failure will only increase pessimism as it reflects a dysfunctional system for setting economic policy. Moreover, the details of the settlement matter, as it is hard to imagine a positive reaction if it did not include the extension of the payroll tax cut. While tax hikes on top incomes will result in spending declines, ending the payroll tax holiday will result in significant losses in confidence and spending.”
Personal financial expectations fell to their lowest level in a year. Financial gains were expected by just one-in-four households in December; the majority anticipated no income increase. Even though consumers expected a low inflation rate, the majority nonetheless expected a declining inflation-adjusted income in the year ahead.
Consumers anticipated at least a slowdown in economic growth. They more frequently expected a downturn during the year ahead without a resolution to the fiscal cliff. Just one-third of all consumers expected an uninterrupted expansion over the next five years. The proportion that expected a rising unemployment rate during the year ahead jumped to 35 percent in December, up from 19 percent in October, and the highest level since the summer of 2011.
The Sentiment Index was 72.9 in December 2012, down from 82.7 in November, but just above last December’s 69.9. Most of the December decline was in the Expectations Index, which fell to 63.8, down from 77.6 in November and the lowest levels since last December’s 63.6. The Current Conditions Index fell to 87.0 in December from 90.7 in November and was well above last December’s 79.6.
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 3.1 percent in the third quarter of 2012, (that is, from the second quarter to the third quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.
The GDP current estimate is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.7 percent. The third estimate has not greatly changed the general picture of the economy for the third quarter except that personal consumption expenditures (PCE) is now showing a modest pickup, and imports is now showing a downturn.
The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.2 percent in November to 95.8 (2004=100), following a 0.3 percent increase in October, and a 0.4 percent increase in September, according to the Conference Board.
“The U.S. LEI decreased slightly in November, bringing its six-month growth rate to zero,” said Ataman Ozyildirim, economist at The Conference Board. “The LEI points to increasing risks of slowing economic activity in the near term, but the coincident economic index, measuring current conditions, continued to increase in November. Gains in the residential construction and financial components of the LEI have been roughly balanced with weak consumer expectations, manufacturing new orders and labor market indicators over the last six months.”
Ken Goldstein, economist at The Conference Board said: “The indicators reflect an economy that remains weak in the face of strong domestic and international headwinds, as it faces a looming fiscal cliff. Growth will likely be slow through the early months of 2013.”
The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.2 percent in November to 104.9 (2004=100), following a 0.1 percent increase in October, and a 0.2 percent increase in September.
The Conference Board Lagging Economic Index® (LAG) increased 0.4 percent in November to 117.8 (2004=100), following a 0.3 percent increase in October, and no change in September.
Existing-home sales continued to improve in November with low inventory supply pressuring home prices, according to the latest report from 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 5.9 percent to a seasonally adjusted annual rate of 5.04 million in November from a downwardly revised 4.76 million in October, and were 14.5 percent higher than the 4.40 million-unit pace in November 2011. Sales were at the highest level since November 2009 when the annual pace spiked at 5.44 million.
Single-family home sales rose 5.5 percent to a seasonally adjusted annual rate of 4.44 million in November from 4.21 million in October, and were 12.4 percent higher than the 3.95 million-unit level in November 2011. The median existing single-family home price was $180,600 in November, up 10.1 percent from a year ago.
Lawrence Yun, NAR chief economist, said there is healthy market demand. “Momentum continues to build in the housing market from growing jobs and a bursting out of household formation,” he said. “With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes. Areas impacted by Hurricane Sandy show storm-related disruptions but overall activity in the Northeast is up, offset by gains in unaffected areas.”
The national median existing-home price for all housing types was $180,600 in November, up 10.1 percent from November 2011. This is the ninth consecutive monthly year-over-year price gain, which last occurred from September 2005 to May 2006.
Total housing inventory at the end of November fell 3.8 percent to 2.03 million existing homes available for sale, which represents a 4.8-month supply at the current sales pace; it was 5.3 months in October, and is the lowest housing supply since September of 2005 when it was 4.6 months.
The median time on market for all homes was 70 days in November, slightly below 71 days in October, but is 28.6 percent below 98 days in November 2011. Thirty-two percent of homes sold in November were on the market for less than a month, while 20 percent were on the market for six months or longer; these findings are unchanged from October.
Regionally, existing-home sales in the Northeast rose 6.9 percent to an annual rate of 620,000 in November and were 14.8 percent above November 2011. The median price in the Northeast was $232,900, down 2.0 percent from a year ago.
Existing-home sales in the Midwest increased 7.2 percent in November to a pace of 1.19 million and were 21.4 percent higher than a year ago. The median price in the Midwest was $141,600, which is 7.0 percent above November 2011.
In the South, existing-home sales rose 7.9 percent to an annual level of 2.04 million in November and were 17.2 percent above November 2011. The median price in the South was $157,400, up 10.5 percent from a year ago.
Existing-home sales in the West rose 0.8 percent to a pace of 1.19 million in November and were 4.4 percent higher than a year ago. With ongoing inventory constraints, the median price in the West was $248,300, which is 23.9 percent above November 2011.
New Residential Sales
Sales of new single-family houses in November 2012 were at a seasonally adjusted annual rate of 377,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 4.4 percent above the revised October rate of 361,000 and was 15.3 percent above the November 2011 estimate of 327,000.
The median sales price of new houses sold in November 2012 was $246,200; the average sales price was $299,700. The seasonally adjusted estimate of new houses for sale at the end of November was 149,000. This represents a supply of 4.7 months at the current sales rate.
New residential sales in November 2012 compared to November 2011 were up 68.8 percent in the Northeast; 17.2 percent in the South and 13.7 percent in the West, offset by a 5.8 percent decline in the Midwest.
The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced that privately-owned housing starts in November were at a seasonally adjusted annual rate of 861,000. This was 3.0 percent below the revised October estimate of 888,000, but was 21.6 percent above the November 2011 rate of 708,000.
Single-family housing starts in November were at a rate of 565,000; this was 4.1 percent below the revised October figure of 589,000. Single-family housing starts were, comparing November 2012 to November 2011, up 40.0 percent in the Midwest; up 23.0 percent in the South and 32.6 percent in the West. The Northeast reported a 19.3 percent decline.
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $412.4 billion, an increase of 0.3 percent from the previous month and 3.7 percent above November 2011. Total sales for the September through November 2012 period were up 4.3 percent from the same period a year ago.
Retail trade sales were up 0.2 percent from October 2012 and 3.4 percent above last year. Nonstore retailers were up 11.1 percent from November 2011 and sporting goods, hobby, book and music stores were up 7.1 percent from last year.
On an adjusted basis, sales at furniture and home furnishings stores were up 1.0 percent over October 2012 and 6.1 percent over November 2011. Year-to-date, sales at these stores were up 8.2 percent over the same period a year ago.
The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.3 percent in November 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 1.8 percent before seasonal adjustment.
The gasoline index fell 7.4 percent in November; this decrease more than offset increases in other indexes, resulting in the decline in the seasonally adjusted all items index. The energy index fell 4.1 percent in November despite increases in the indexes for natural gas and electricity. The food index rose 0.2 percent with the food at home index increasing 0.3 percent, the same increases as in October.
The index for all items less food and energy increased 0.1 percent in November after a 0.2 percent increase in October. The indexes for shelter, household furnishings and operations, airline fares, recreation, new vehicles, and medical care all increased in November, while the indexes for apparel and used cars and trucks declined.
The all items index increased 1.8 percent over the last 12 months, a decline from the 2.2 percent figure in October. The index for all items less food and energy rose 1.9 percent over the last 12 months, slightly lower than the October figure of 2.0 percent.
Total nonfarm payroll employment rose by 146,000 in November, and the unemployment rate edged down to 7.7 percent, according to the U.S. Bureau of Labor Statistics. Employment increased in retail trade, professional and business services, and health care. The number of unemployed persons, at 12.0 million, changed little.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in November increased $1.6 billion or 0.7 percent to $220.9 billion, according to the release from the U.S. Census Bureau. This increase, up six of the last seven months, followed a 1.1 percent October increase. Excluding transportation, new orders increased 1.6 percent. Excluding defense, new orders increased 0.8 percent.
Machinery, up three consecutive months, had the largest increase, $1.0 billion or 3.3 percent to $32.0 billion.
Shipments of manufactured durable goods in November, up four of the last five months, increased $3.4 billion or 1.5 percent to $227.1 billion. This followed a 0.1 percent October increase.
Transportation equipment, up two of the last three months, had the largest increase, $1.4 billion or 2.2 percent to $65.6 billion. This followed a 0.3 percent October decrease.
According to these government reports, shipments of furniture and related products in October 2012 increased 5.7 percent over October 2011 and were 4.0 percent higher year-to-date. Orders in this category were up 4.0 percent over October a year ago with year-to-date orders up 4.5 percent.
The results of our recent survey of residential furniture manufacturers and distributors were once again positive. October orders exceeded October 2011 orders by 6 percent with year-to-date orders up 5 percent over 2011. Shipments in October were up 5 percent over October 2011 with year-to-date shipments up 7 percent. Backlogs were up a healthy (or unhealthy depending on the way you look at it) 15 percent over October last year.
Receivables levels remained in line while inventories grew. It does not appear that inventories are significantly out of line with current volume levels, but they will need to be watched. Factory and warehouse payrolls and employees also seem in line with payrolls up 5 percent year-to-date and the number of employees up 4 percent over last year.
Orders may have been slightly impacted by High Point Market dates as Market was a week earlier this year, though we doubt there would be that much impact. One participant laughingly told me some time around Thanksgiving that he was still waiting on his Market orders.
From the reports of the Conference Board and the University of Michigan, consumer confidence took another big hit. I like the comments made by Richard Curtin from the Michigan Study where he noted that “Confidence is lost much more easily than it can be regained, and the pessimism created by not reaching a resolution before year-end will be difficult to reverse even if a settlement is reached soon after the start of 2013.”
The bad part to all of this is that the housing market has finally shown real signs of life after a long, long weary time. Sales are up, starts are up, prices are moving up, and inventories are down. In fact, sales of existing homes were at the highest level since November 2009. And the inventory of homes for sale is at the lowest level since September of 2005. Even the average days homes are on the market are down quite nicely. This has definitely been needed by the industry. If only we could match this up with confidence, things would be so much better.
This Furniture Insights® newsletter report has been re-published with the permission of Smith Leonard PLLC an independent member of the BDO Seidman Alliance.
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