Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

Furniture Insights 

Monthly Results 

New Orders

Our recent survey of residential furniture manufacturers and distributors continued to result in more positive news. According to the survey, new orders were 12 percent higher in December 2009 versus December 2008. December 2008 orders were 21 percent lower than December 2007 orders. While all the decline was not made up, this was at least a move in the right direction.

The increase in December followed October results, which were flat with October 2008 and a 10 percent increase in November 2009 orders over November 2008. So at least we have stopped the bleeding for three months in a row.

For the month, approximately 62 percent of the participants reported increased orders over the same month a year ago. The 62 percent is up from 51 percent last month, 41 percent in October, 33 percent in September and 20 percent in August—certainly another good trend.

For the 2009 year, new orders declined 13 percent. At the end of June, year-to-date orders were down 20 percent from a high of 22 percent earlier in the year. Some 91 percent of the participants reported lower orders for the 2009 year. 

Shipments and Backlogs 

Shipments in December 2009 were 3 percent higher than December 2008, the first increase reported since June 2006. That is right—not a typo—June 2006. December 2008 shipments were 22 percent lower than December 2007, so we have a good deal of making up to do.  

Approximately one-half of our participants reported increased shipments in December.

For the year, shipments fell 15 percent from 2008 when they decreased 12 percent from 2007 levels. Approximately 93 percent of the participants reported lower shipments for the year. Last year, 84 percent of the participants reported lower shipments than in 2007. 

Backlogs fell 4 percent from November as shipments exceeded orders in total. Backlogs were 13 percent higher in December than they were a year ago at this time which should help shipments in the coming months. 

Receivables and Inventories

Receivables fell 1 percent from November levels and were down 8 percent from last December. Considering the decline in sales of 15 percent, but the slower decline in the last quarter, receivable levels continue to look pretty good on an overall basis.

Inventories were even with November and were down 26 percent from last December when they were down 6 percent from the previous year. For the two year period, shipments were down just over 25 percent with inventories down over that same period about 30 percent. Considering the shift to more direct shipments to retailers, it appears that inventory levels are also in pretty good shape. 

Factory and Warehouse Employees and Payrolls

Factory and warehouse employees were even with November and down 10 percent compared to December 2008, when they were down 17 percent from 2007 levels or off 22 percent over a two year period.

Payrolls were up in December over November, but that is somewhat normal with the December vacation pay and some bonuses. Payrolls were also up 3 percent over last December, bringing the year-to-date payrolls to a decrease of 16 percent over last year when they were down 15 percent. 

National 

Consumer Confidence

The Conference Board Consumer Confidence Index®, which had increased in January, declined sharply in February. The Index now stands at 46.0 (1985=100), down from 56.5 in January. The Present Situation Index decreased to 19.4 from 25.2. The Expectations Index declined to 63.8 from 77.3 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer Confidence, which had been improving over the past few months, declined sharply in February. Concerns about current business conditions and the job market pushed the Present Situation Index down to its lowest level in 27 years (Feb. 1983, 17.5). Consumers’ short-term outlook also took a turn for the worse, with fewer consumers anticipating an improvement in business conditions and the job market over the next six months. Consumers also remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending.”

Consumers’ assessment of current-day conditions soured in February. Those claiming conditions are “good” decreased to 6.2 percent from 8.5 percent, while those claiming business conditions are “bad” increased to 46.3 percent from 44.7 percent. Consumers’ assessment of the labor market was also more pessimistic. Those saying jobs are “hard to get” rose to 47.7 percent from 46.5 percent, while those saying jobs are “plentiful” decreased to 3.6 percent from 4.4 percent.

Consumers’ short-term outlook, which had been improving, lost considerable ground in February. The percentage of consumers anticipating an improvement in business conditions over the next six months decreased to 16.7 percent from 20.7 percent, while those anticipating conditions will worsen increased to 15.3 percent from 12.7 percent. 

Leading Economic Indicators

According to The Conference Board, the Leading Economic Index™ (LEI) for the U.S. increased 0.3 percent in January, following a 1.2 percent gain in December, and a 1.1 percent rise in November.

Ataman Ozyildirim, Economist at The Conference Board said: “The U.S. LEI has risen steadily for nearly a year, led by an improvement in financial markets and a manufacturing upturn. Consumer expectations and housing permits have also contributed to these gains over this period, but to a lesser extent – especially in recent months. Current economic conditions, as measured by The Conference Board Coincident Economic Index® (CEI), have also improved modestly since July 2009, helped by strengthening industrial production, despite continued weakness in employment.”

Ken Goldstein, Economist at The Conference Board added: “The cumulative change in the U.S. LEI over the past six months has been a strong 9.8 percent, annualized. This signals continued economic recovery at least through the spring.”  Obviously, the economists looking at the big picture have a different view than consumers. 

Housing 

Existing-Home Sales

Existing-home sales fell in January but are above year-ago levels, according to the National Association of Realtors®.

Existing home sales – including single-family, townhomes, condominiums and co-ops – dropped 7.2 percent to a seasonally adjusted annual rate of 5.05 million units in January from a revised 5.44 million in December, but remain 11.5 percent above the 4.53 million-unit level in January 2009.

Single-family home sales fell 6.9 percent to a seasonally adjusted annual rate of 4.43 million in January from a level of 4.76 million in December, but are 8.6 percent above the 4.08 million pace in January 2009. The median existing single-family home price was $163,600 in January, down 0.4 percent from a year ago.

Lawrence Yun, NAR chief economist, said, “There is still some delay between shopping and closing that affected current sales. Most of the completed deals in January were based on contracts in November and December. People who got into the market after the home buyer tax credit was extended in November have only recently started to offer contracts, so it will take a couple months to close those sales,” he said. “Still, the latest monthly sales decline is not encouraging, and raises concern about the strength of a recovery.”

Total housing inventory at the end of January fell 0.5 percent to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace, up from a 7.2-month supply in December.

“Activity should be picking up strongly in late spring as buyers take advantage of the tax credit, which is critical to absorb distressed properties reaching the market and to continually chip away at inventory,” Yun said. “With a downtrend in the number of homes on the market, especially in the lower price ranges, values are beginning to firm but with great variance around the country.”

The national median existing-home price for all housing types was $164,700 in January, unchanged from a year earlier. Distressed homes, which accounted for 38 percent of sales last month, continue to downwardly distort the median price because they typically are discounted in comparison with traditional homes in the same area.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage edged up to 5.03 percent in January from 4.93 percent in December; the rate was 5.05 percent in January 2009.

Regionally, existing-home sales in the Northeast fell 10.9 percent in January but are 22.4 percent above a year ago. The median price in the Northeast was $245,300, a gain of 8.8 percent from January 2009.

Existing-home sales in the Midwest declined 6.9 percent in January but are 8.0 percent higher than January 2009. The median price in the Midwest was $130,300, which is 1.0 percent below a year ago.

In the South, existing-home sales dropped 7.4 percent in January but are 12.0 percent above a year ago. The median price in the South was $140,200, down 2.0 percent from January 2009.

Existing-home sales in the West declined 5.2 percent in January but are 7.6 percent higher than January 2009. The median price in the West was $203,400, down 5.8 percent from a year ago. 

New Residential Sales

According to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single-family houses in January 2010 were at a seasonally adjusted annual rate of 309,000. This was 11.2 percent below the revised December rate of 348,000 and was 6.1 percent below the January 2009 estimate of 329,000. The median sales price of new houses sold in January 2010 was $203,500; the average sales price was $254,500. The seasonally adjusted estimate of new houses for sale at the end of January was 234,000. This represents a supply of 9.1 months at the current sales rate.

New houses sold were down compared to last year in all regions, except the West where sales were 13.8 percent above January 2009. Sales were down 20.0 percent in the Northeast, 7.5 percent in the Midwest, and 10.5 percent in the South. 

Housing Starts

Privately-owned housing starts in January were at a seasonally adjusted annual rate of 591,000, according to the U.S. Census Bureau. This was 2.8 percent above the revised December estimate of 575,000 and is 21.1 percent above the January 2009 rate of 488,000.

Single-family housing starts in January were at a rate of 484,000; this was 1.5 percent above the revised December figure of 477,000. 

Retail Sales

The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $355.8 billion, an increase of 0.5 percent from the previous month and 4.7 percent above January 2009. Total sales for the November 2009 through January 2010 period were up 4.3 percent from the same period a year ago.

Retail trade sales were up 0.5 percent from December 2009 and 5.3 percent above last year. Gasoline stations sales were up 29.0 percent from January 2009 and nonstore retailers were up 12.4 percent from last year.

Sales at furniture and home furnishings stores were 6.5 percent lower than January a year ago and down 25 percent from December (not adjusted). 

Consumer Prices

On a seasonally adjusted basis, the January Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the index increased 2.6 percent before seasonal adjustment.

The seasonally adjusted increase in the all items index was due to a rise in the energy index. An increase in the gasoline index was the main factor, and the indexes for fuel oil and natural gas rose as well, though the electricity index declined.

The index for all items less food and energy fell 0.1 percent in January. This decline was largely the result of decreases in the indexes for shelter, new vehicles, and airline fares. In contrast, the medical care index posted its largest increase since January 2008, and the index for used cars and trucks increased significantly for the sixth month in a row. 

Employment

The unemployment rate fell from 10.0 to 9.7 percent in January, and nonfarm payroll employment was essentially unchanged 
(-20,000), according to the U.S. Bureau of Labor Statistics. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs. In January, the number of unemployed persons decreased to 14.8 million.  

Durable Goods Orders and Factory Shipments

The U.S. Census Bureau reported that new orders for manufactured durable goods in January increased 3.0 percent to $175.7 billion. This was the second consecutive monthly increase and followed a 1.9 percent December increase. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders increased 1.6 percent.

Transportation equipment, up four of the last five months, had the largest increase at 15.6 percent. This was led by nondefense aircraft and parts.

Shipments of manufactured durable goods in January, down following four consecutive monthly increases, decreased 0.2 percent to $180.7 billion. This followed a 2.4 percent December increase.

Shipments of furniture and related products increased 1.8 percent over November but were 9 percent lower than December 2008. Year-to-date, shipments in this category were 19.1 percent lower than the totals for 2008. 

Consumer Credit

According to the Federal Reserve statistical release, consumer credit decreased at an annual rate of 4.75 percent in the fourth quarter of 2009. Revolving credit decreased at an annual rate of 13 percent while non-revolving credit was essentially unchanged.

Summary

With orders up or at least flat three months in a row, we do believe we may have hit bottom. Admittedly, the comparisons to the fourth quarter last year were against very weak numbers, but at least it doesn’t appear we were digging a deeper hole.

Of course, as soon as we start making positive strides, winter weather comes along with one of the harshest winters in many years. The Northeast and mid-Atlantic was hit the hardest and we know that there is lots of furniture sold in that area of the country. When we have a day that there is snow in 49 of the 50 states, we know it’s been a tough winter.

Consumer confidence took a tumble in February – not what we needed. We hope that this was affected by the lousy weather. Such weather keeps people indoors and likely watching more news on television. We know from our own experience that there is not much that can bring you down more than listening to all the negative news.

As we mentioned early, the economists looking at the big picture, seem to think the economy is improving – for instance the increase in the leading economic indicators. But that thinking has not moved to consumers, which is what we need for residential furniture sales.

With that said, spring time is coming. For those who have been hit hard with weather, attitudes will get better if for no reason other than the weather. Hopefully people being kept in will notice that some of their furniture actually does need replacing. 

The last wave of tax credits for home buying is also nearing. We, like the NAR, believe this will spur more activity in the housing market. That should also be a good thing for the furniture industry.

Keep the faith and do all you can do to keep products fresh and exciting. Better times are coming. We wish we could tell you exactly by when. Of course, if we could tell you when, we would be on some island somewhere.
 

  (R) Revised 
 

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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