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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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Monthly Results 

New Orders

January 2010 new orders were positive again compared to January 2009, according to our latest survey of residential furniture manufacturers and distributors. While not quite as positive as the November and December results, at least they were positive, showing a 4 percent increase over January 2009. January 2009 new orders were 24 percent lower than January 2008.

While the results were not all that great, the 4 percent increase followed a 12 percent increase in December and 10 percent in November and a flat October in year over year comparisons. We believe January results were negatively impacted by bad weather in January and we expect February results to also be affected. This was a terrible winter weather-wise, especially in the Mid Atlantic and Northeast sections of the country.

Some 59 percent of the participants reported increased orders down slightly from 62 percent in December. The 59 percent is still a long way from 20 percent of the participants in August. 

Shipments and Backlogs 

Shipments in January were 6 percent higher than January 2009, following a 3 percent increase in December. While shipments were down 24 percent in January 2009 versus January 2008, remember that December’s increase in shipments was the first increase in shipments since June 2006. 
  
Shipments in January were 10 percent lower than December 2009, but that was somewhat normal in the January to December comparisons. Approximately 62 percent of the participants reported increased shipments in January up from approximately 50 percent in December. 

Your browser may not support display of this image.Backlogs were 4 percent higher than December and 26 percent higher than January 2009. This was the fourth month in a row that backlogs have increased over the prior year. We realize that some of this relates to imports and the time it takes to get through the system, but it is good to see backlogs increasing at least somewhat. 

Receivables and Inventories

Receivables were 4 percent lower than January 2009 even with shipments increasing 6 percent in January. Receivables increased 1 percent over December in spite of a 10 percent decline in shipments.

We continue to hear about slower paying customers, but we are also hearing more about requiring deposits, especially in the custom order business. We did have a few bankruptcies and going out of business situations in 2009. Hopefully, no more significant ones are on the horizon.

Inventories increased 10 percent over December 2009 but were still 21 percent lower than January 2009. A number of companies took some down time in December and many did not accept new inventory until after the first of the year. We continue to believe that inventories are in pretty good shape, especially after the last two years of heavy discounting in order to move slow moving and obsolete items.

In addition, we have noted that companies are keeping a close eye on raw materials, for those who are still manufacturing. 

Factory and Warehouse Employees and Payrolls

Factory and warehouse payrolls were 6 percent lower than January 2009 when they were down 25 percent from January 2008. Payrolls were down 21 percent from December, but most of that, we believe, related to year end bonuses and vacation pay.

The number of factory and warehouse employees was also down 6 percent from January 2009, when they were down 17 percent from the year before. The number of employees was actually up 3 percent from December 2009. 

National 

Consumer Confidence

According to the Conference Board, the Consumer Confidence Index®, which had decreased in February, rebounded in March. The Index now stands at 52.5 (1985=100), up from 46.4 in February. The Present Situation Index increased to 26.0 from 21.7. The Expectations Index improved to 70.2 from 62.9 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer Confidence, which had declined sharply in February, managed to recoup most of the loss in March. However, despite this month’s increase, consumers continue to express concern about current business and labor market conditions. And, their outlook for the next six months is still rather pessimistic. Overall, consumer confidence levels have not changed significantly since last spring.”

According to the report, consumers’ short-term outlook improved in March. Those anticipating conditions will worsen over the next six months declined to 13.9 percent from 15.9 percent, while those anticipating an improvement increased to 18.3 percent from 16.1 percent.

Regarding the outlook for the labor market, the percentage of consumers expecting fewer jobs in the months ahead decreased to 21.6 percent from 24.7 percent. Those anticipating more jobs will become available increased to 14.6 percent from 13.2 percent. The proportion of consumers anticipating an increase in their incomes improved to 10.5 percent from 10.1 percent. 

Leading Economic Indicators

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in February, following a 0.3 percent gain in January, and a 1.2 percent rise in December.

Ataman Ozyildirim, Economist at The Conference Board said: “The LEI for the U.S. has risen rapidly for almost a year now and it has reached its highest level. But, the sharp pick up in the LEI appears to be stabilizing. As the economy moves from recovery into early phases of an expansion, the leading economic index points to moderately improving economic conditions in the near term. Correspondingly, the coincident economic index has been rising since July 2009, albeit slightly because of continued weakness in employment.”

Ken Goldstein, Economist at The Conference Board added: “The indicators point to a slow recovery this summer. Going forward, the big question remains the strength of demand. Without increased consumer demand, job growth will likely be minimal over the next few months.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. rose 0.1 percent in February, following no change in January, and a 0.1 percent increase in December. The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in February, following a 0.2 percent decline in January, and a 0.4 percent decline in December. 

Housing 

Existing-Home Sales

Existing-home sales declined slightly in February, with modest gains in the Northeast and Midwest offset by softer sales in the South and West, according to the National Association of Realtors®.

Existing-home sales which include single-family, townhomes, condominiums and co-ops, slipped 0.6 percent nationally to a seasonally adjusted annual rate of 5.02 million units in February from 5.05 million in January, but are 7.0 percent higher than the 4.69 million-unit pace in February 2009.

Single-family home sales declined 1.4 percent to a seasonally adjusted annual rate of 4.37 million in February from a pace of 4.43 million in January, but are 4.3 percent higher than the 4.19 million level a year ago. The median existing single-family home price was $164,300 in February, down 2.1 percent from February 2009.

Lawrence Yun, NAR chief economist, said widespread winter storms in February may mask underlying demand. “Some closings were simply postponed by winter storms, but buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity,” he said.

He also noted “Although sales have been higher than year-ago levels for eight straight months and home prices are much more stable compared to the past few years, the housing recovery is fragile at the moment.”

Total housing inventory at the end of February rose 9.5 percent to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January. Raw unsold inventory is 5.5 percent below a year ago.

 “The key test for a durable recovery comes in the next few months as the tax credit deadline approaches,” Yun said. “If we see a surge in home buying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure a broad home price stabilization.”

Regionally, existing-home sales in the Northeast rose 2.4 percent to an annual pace of 840,000 in February and are 12.0 percent above a year ago. The median price in the Northeast was $254,700, up 7.5 percent from February 2009.

Existing-home sales in the Midwest increased 2.8 percent in February to a level of 1.11 million and are 8.8 percent higher than February 2009. The median price in the Midwest was $128,000, which is 2.0 percent below a year ago.

In the South, existing-home sales slipped 1.1 percent to an annual pace of 1.85 million in February but are 6.9 percent above a year ago. The median price in the South was $139,600, down 4.2 percent from February 2009.

Existing-home sales in the West fell 4.7 percent to an annual rate of 1.22 million in February but are 3.4 percent higher than February 2009. The median price in the West was $207,900, down 9.8 percent from a year ago. 

New Residential Sales

According to estimates by the U.S. Census Bureau and the Department of Housing and Urban Development, the sales of new single-family houses in February 2010 were at a seasonally adjusted annual rate of 308,000. This is 2.2 percent below the revised January rate of 315,000 and is 13.0 percent below the February 2009 estimate of 354,000. 

The median sales price of new houses sold in February 2010 was $220,500; the average sales price was $282,600. The seasonally adjusted estimate of new houses for sale at the end of February was 236,000. This represents a supply of 9.2 months at the current sales rate.

Sales of new residential houses were flat in the Northeast and down 18.0 percent in the Midwest, down 29.5 percent in the South and down 34.8 percent in the West compared to February 2009. 

Housing Starts

The U.S. Census Bureau and the Department of Housing and Urban Development reported that privately-owned housing starts in February were at a seasonally adjusted annual rate of 575,000. This is 5.9 percent below the revised January estimate of 611,000, but was 0.2 percent above the February 2009 rate of 574,000.

Single-family housing starts in February were at a rate of 499,000; this was 0.6 percent below the revised January figure of 502,000. 

Retail Sales

The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $355.5 billion, an increase of 0.3 percent from the previous month and 3.9 percent above February 2009. Total sales for the December 2009 through February 2010 period were up 4.5 percent from the same period a year ago. 

 Retail trade sales were up 0.3 percent from January 2010 and 4.4 percent above last year. Gasoline stations sales were up 24.0 percent from February 2009 and nonstore retailers sales were up 11.8 percent from last year.

Sales at furniture and home furnishings stores were 2.1 percent lower than February 2009 on an adjusted basis. Year-to-date, sales at these stores were 3.3 percent below the first two months of 2009. 

Consumer Prices

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in February, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the index increased 2.1 percent before seasonal adjustment.

The unchanged all items index was the result of a decline in the energy index being offset by slight increases in the indexes for food and for all items less food and energy. Within the latter group, declines in the indexes for apparel and household furnishings and operations were more than offset by continuing increases in the indexes for medical care and used cars and trucks. The 12-month increase in the index for all items less food and energy now stands at 1.3 percent, the lowest since February 2004. 

Employment

Nonfarm payroll employment was little changed (-36,000) in February, and the unemployment rate held at 9.7 percent, based on the report from the U.S. Bureau of Labor Statistics. Employment fell in construction and information, while temporary help services added jobs. Severe winter weather in parts of the country may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on these measures. In February, the number of unemployed persons, at 14.9 million, was essentially unchanged.  

Durable Goods Orders and Factory Shipments

The U.S. Census Bureau reported that new orders for manufactured durable goods in February increased 0.5 percent. This was the third consecutive monthly increase and followed a 3.9 percent January increase. Excluding transportation, new orders increased 0.9 percent. Excluding defense, new orders increased 1.6 percent.

Machinery, up three of the last four months, had the largest increase, 4.7 percent.

Shipments of manufactured durable goods in February, down two consecutive months, decreased $1.0 billion or 0.6 percent. This followed a 0.1 percent January decrease.

Transportation equipment, also down two consecutive months, had the largest decrease, $1.5 billion or 3.4 percent to $43.8 billion.

According to this report, shipments of furniture and related products were 6.2 percent lower than January 2009 and orders were down 6.3 percent.

 Summary

For the third consecu-tive month, new orders in January increased over the same month a year ago. After two years of significantly declining order rates, this news has been good news. Certainly, we are not making up much ground, but with some stabilization, this is allowing companies to at least attempt to adjust to current levels versus wondering how low it can go.

The news we heard from pre-market was mostly very good. The retailers who came seemed to feel that business was improving – maybe not where they want it, but improving. As we mentioned before, we believe the weather has clearly been a factor for most of this winter. Snow, rain, floods – you name it, we have had more than normal in most areas of the country. Hopefully as spring has come, consumers attitudes will improve – in spite of the mess in Washington. 

We also have heard from other retailers that business continues to improve. We hope that trend continues and should make for a good High Point Market.

We hope to see you at Market. Please let us know if we can be of any assistance in the accounting and tax world or just talking about business conditions.  

Estimated Business Activity (Millions of Dollars)
 
        January

2010

December

2009

January

2009

December

2008

New Orders 1,520 1,587 1,462 1,417
Shipments 1,470 1,621 1,391 1,567
Backlog (R) 1,501 1,446 1,193 1,122

             (R) Revised 

Key Monthly Indicators
        January 2010

From December 2009

Percent Change

January 2010

From January 2009

Percent Change

New Orders  -4 +4
Shipments -10 +6
Backlog +4 +26
Payrolls -21 -6
Employees +3 -6
Receivables +1 -4
Inventories +10 -21
 
Percentage Increase or Decrease Compared to Prior Year
        New Orders Shipments Backlog Employment
2009        
January -24 -24 -22 -17
February -18 -20 -21 -19
March -17 -17 -21 -20
April -27 -21 -26 -21
May -17 -19 -24 -20
June -16 -19 -21 -19
July -16 -19 -13 -20
August -12 -18 -7 -17
September -10 -14 -7 -17
October -10 +1 -13
November +10 -1 +7 -11
December +12 +3 +13 -10
2010        
January +4 +6 +26 -6
___________________________

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.

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