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Monthly Survey Of Furniture Business Reports Slow Growth

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New Orders

As we somewhat expected, the growth in new orders continued to slow in August. According to our recent survey of residential furniture manufacturers and distributors, new orders in August 2010 were 1 percent higher than orders in August 2009. August 2009 orders were off 12 percent from August 2008. The results were in line with most of what we had heard on the street.

In August, 58 percent of the participants reported increased orders versus only 45 percent last month, but the percentage increases were, for the most part, lower this month than last. As has been the case for sometime now, the results for the month varied widely among the participants.

Year-to-date, new orders are up 8 percent over the first eight months, down from a 9 percent increase reported in July. At this time last year, new orders were 19 percent lower than the same period a year ago. Approximately 67 percent of the participants reported increased year-todate orders, the same percentage as last month.

Shipments and Backlogs

Shipments were 11 percent ahead of August 2009, where they were down 18 percent from August 2008. With orders showing a smaller increase, these shipments were to a degree out of backlogs. We suspect that some of this increase related to finally receiving some product that was ordered at the April market. Approximately 68 percent of the participants reported increased shipments, up slightly from last month.

Year-to-date, shipments increased 9 percent over the same period a year ago, up slightly from July results. In 2009, shipments year-to-date were off 20 percent from 2008.

As expected, with shipments higher than orders, backlogs fell 6 percent from July but remained 18 percent higher than August 2009. This compares to increases of 40 percent reported in May, 35 percent
in June and 27 percent in July. One person told me that his backlogs were getting too high, which worried him from a customer service standpoint. Then he noted that now that they are down, backlogs sure felt better when he had them.

Receivables and Inventories

Receivables in August 2010 were 15 percent higher than August 2009, up from a 12 percent increase reported in July. Receivables were 6 percent higher than July 2010. The increases would be expected with the increase in shipments, though we continue to hear of extended terms either given or taken by dealers.

Inventories were 14 percent higher than August 2009, up from a 6 percent increase last month. Some of this, we believe, resulted from imported goods coming into warehouses from previous orders. More may have resulted from manufacturers and distributors ordering more based on earlier increases in orders, but with new orders slowing, inventories increased.

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees was up 2 percent over August a year ago. This compares to a 3 percent increase reported in July. Yet, the number of employees was flat compared to July 2010.

Payrolls were up 11 percent over August 2009. Year-to-date, payrolls remained 12 percent ahead of the first 8 months of 2009.

National

Consumer Confidence

The Conference Board reported that the Consumer Confidence Index®, which had declined in September, increased slightly in October. The Index now stands at 50.2 (1985=100), up from 48.6 in September. The Present Situation Index increased to 23.9 from 23.3. The Expectations Index improved to 67.8 from 65.5. Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence, while slightly improved from September levels, is still hovering at historically low levels.

Consumers’ assessment of the current state of the economy is relatively unchanged, primarily because labor market conditions have yet to significantly improve. And, despite the uptick in Expectations, consumers continue to be quite concerned about the short-term outlook. Both present and future indicators point toward more of the same in the coming months.”

Consumers’ appraisal of current conditions was somewhat mixed in October. Those claiming business conditions are “bad” decreased to 41.9 percent from 46.0 percent, while those claiming business
conditions are “good” edged up to 8.5 percent from 8.2 percent.

Consumers’ expectations, while still quite bleak, were less pessimistic in October. Those expecting an improvement in business conditions over the next six months rose to 16.0 percent from 15.0 percent, while those expecting business conditions will worsen declined to 14.1 percent from 16.6 percent.

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 1.7 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the “third” estimate released by the Bureau of
Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, accelerations in nonresidential fixed investment and in federal government spending, and an upturn in state and local government spending.

Leading Economic Indicators

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.3 percent in September. Initial unemployment claims (inverted) and the financial components contributed positively to the index this month, more than offsetting the negative contributions from supplier deliveries and building permits. The six month change in the index has continued to slow – to 0.8 percent (about a 1.7 percent annual rate) for the period through September 2010, down sharply from 5.1 percent (about a 10.4 percent annual rate) for the previous six months. In addition, the weaknesses among the leading indicators have been slightly more widespread than the strengths over the past six months.

According to the report, the Conference Board LEI for the U.S. remains on a general upward trend, although its growth has fallen very sharply in recent months. Its six-month growth rate is at its slowest pace since the middle of 2009. Meanwhile, The Conference Board Coincident Economic Index for the U.S. has been basically flat since May this year, after having risen moderately from its most recent trough in June 2009. Taken together, the current behavior of the composite indexes and their components still suggests that economic activity will continue to expand, but at a slow pace in the near term.

Housing

Existing-Home Sales

Existing-home sales rose again in September, affirming that a sales recovery has begun, according to the National Association of Realtors®. Existing-home sales, which are completed transactions that include singlefamily, townhomes, condominiums and coops, jumped 10.0 percent to a seasonally adjusted annual rate of 4.53 million in September from a downwardly revised 4.12 million in August, but remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.

Single-family home sales increased 10.0
percent to a seasonally adjusted annual rate of 3.97 million in September from a pace of 3.61 million in August, but are 19.5 percent below the 4.93 million level in September 2009. The median existing single-family home price was $172,600 in September, down 1.9 percent from a year ago.  Lawrence Yun, NAR chief economist, said the housing market is in the early stages of recovery. “A housing recovery is taking
place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions,” he said.

The national median existing-home price for all housing types was $171,700 in September, which is 2.4 percent below a year ago. Distressed homes accounted for 35 percent of sales in September compared with 34 percent in August; they were 29 percent in September 2009.

Total housing inventory at the end of September fell 1.9 percent to 4.04 million
existing homes available for sale, which represents a 10.7-month supply at the current sales pace, down from a 12.0-month supply in August. Raw unsold inventory is 11.7 percent below the record of 4.58 million in July 2008.

Regionally, existing-home sales in the Northeast increased 10.1 percent in September but are 20.8 percent below September 2009. The median price in the Northeast was $239,200, which is 1.4 percent below a year ago.

Existing-home sales in the Midwest jumped 14.5 percent in September but are 26.4 percent below a year ago. The median price in the Midwest was $139,700, down 5.2 percent from September 2009. In the South, existing-home sales rose 10.6 percent in September but are 14.9 percent lower than September 2009. The median price in the South was $149,500, down 2.6 percent from a year ago. Existing-home sales in the West
increased 5.0 percent in September but are 16.7 percent below a year ago. The median price in the West was $213,600, which is 4.9 percent lower than September 2009.

New Residential Sales

Sales of new single-family houses in September 2010 were at a seasonally adjusted annual rate of 307,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.6 percent above the revised August rate of 288,000, but is 21.5 percent below the September 2009 estimate of 391,000.

The median sales price of new houses sold in September 2010 was $223,800; the average sales price was $257,500. The seasonally adjusted estimate of new houses for sale at the end of September was
204,000. This represents a supply of 8.0 months at the current sales rate.

Housing Starts According to the U.S. Census Bureau, privately-owned housing starts in September were at a seasonally adjusted annual rate of 610,000. This is 0.3 percent above the revised August estimate of 608,000 and is 4.1 percent above the September 2009 rate of 586,000.

Single-family housing starts in September were at a rate of 452,000; this is 4.4 percent above the revised August figure of 433,000. Single unit starts were higher than last September in the
Northeast, but lower in the three other regions of the country.

Retail Sales

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $367.7 billion, an increase of 0.6 percent from the previous month, and 7.3 percent above September 2009.

Total sales for the July through September 2010 period were up 5.7 percent from the same period a year ago. Retail trade sales were up 0.7 percent from August 2010, and 7.7 percent above last year. Auto and other motor vehicle dealers sales were up 19.0 percent from September 2009 and nonstore retailers sales were up 14.4 percent from last year. On an adjusted basis, sales at furniture and home furnishings stores
were up 0.5 percent over August and up 3.1 percent over September 2009. Year-todate, sales at these stores were up 2.3 percent.

Consumer Prices

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in September on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment. Increases in food indexes and another rise in the gasoline index contributed to the all items seasonally adjusted increase this month. Four of the six major grocery store food group indexes increased in September as the food index posted its largest increase since October 2008. The gasoline index rose again in September, leading to a third consecutive increase in the energy index despite a decline in the index for household energy.

The index for all items less food and energy was unchanged in September, as it was in August. The shelter index wasunchanged for the second month in a row.

The indexes for apparel, household furnishing and operations, recreation, and used cars and trucks all declined in September, offsetting a sharp increase in the index for medical care and a slight increase in the index for new vehicles. Over the last 12 months, the index for all items less food and energy rose 0.8 percent, the lowest 12-month increase since March 1961, with the shelter component down 0.4 percent. The food index rose 1.4 percent, with both the food at home index and food away from home index rising the same 1.4 percent. The energy index rose 3.8 percent over the last year, with gasoline up 5.1 percent.

Employment

Nonfarm payroll employment edged down (-95,000) in September, and the unemployment rate was unchanged at 9.6 percent, according to the U.S. Bureau of Labor Statistics. Government employment declined (-159,000), reflecting both a drop in the number of temporary jobs for
Census 2010 and job losses in local government. Private-sector payroll
employment continued to trend up modestly (+64,000). The number of unemployed persons, at 14.8 million, was essentially unchanged in September, and the unemployment rate held at 9.6 percent.

Durable Goods Orders and Factory Shipments

New orders for manufactured durable goods in September increased $6.3 billion or 3.3 percent to $199.2 billion, according to the U.S. Census Bureau. Up two of the
last three months, this increase followed a 1.0 percent August decrease. Excluding transportation, new orders decreased 0.8 percent. Excluding defense, new orders increased 2.9 percent.

Transportation equipment, also up two of the last three months, had the largest increase, $7.4 billion or 15.7 percent to $54.8 billion. This was due to nondefense aircraft and parts, which increased $6.6 billion.

Shipments of manufactured durable goods in September, down two consecutive months, decreased $0.9 billion or 0.4 percent to $197.4 billion. This followed a 1.4 percent August decrease. Transportation equipment, up following four consecutive monthly decreases, had the largest increase, $5.8 billion or 1.2 percent to $480.0 billion.

Summary

As we noted earlier, the slight increase in orders in August was not unexpected. Most of the people we have talked with over the last couple of months had indicated that July and August had started to cool down a bit.

At market, most of those we talked with noted that business was picking up until sometime in July when orders began to slow down. That continued into August, and except for some results of Labor Day sales, continued into September. The order rates have not seemed to decline from last year, but have not increased.

On a brighter note, the High Point Market was much more up beat than we expected. Traffic, while not in the glory days, appeared to be pretty good. We did hear that several dealers brought fewer people, but we also heard that there were several new buyers, some came that had not been here for a while, and international traffic apparently was up as well.

Many were here to refresh their stores. From some of the stories we heard, some of the retailers that are reporting good business, attribute that to keeping their floors fresh with new and exciting items. We continue to believe that makes a lot of sense for obvious reasons.

The same seemed to be true for many of the exhibitors. Those that brought out a fair amount of new product, seemed to be pleased with the reaction at market. On another bright note for market, the
weather was about as good as it gets. That kept lots of people on the streets which added to the “mood” of market.

Unfortunately, the economy in general is not helping. Many believe that once the elections are over, consumers may gain more confidence, but others believe that the economy is so bad, that the elections will not matter. We will see in a few weeks which ones are right. With that said, we continue to believe that it is going to be a while before we see significant improvement. As we said to many at market, the chart of historical sales and projections looks like someone laid the hockey stick on its handle .

But at least for a few days, there seemed to be some good feelings going on in the industry. Hopefully, orders after market will make it all worthwhile.

Recently we at Smith Leonard were pleased to be named as one of America’s “100 Best Accounting Firms To Work For.” Naturally, we’re gratified to be named in this listing. It’s a tribute to our entire team, but the truth is it’s just as much a tribute to our valued clients. We’re grateful for their support and we’re thankful to all our associates for their loyalty and dedication.

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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.

 

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