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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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New Orders

New orders in June 2011 were up 1 percent over June 2010 according to our recent survey of residential furniture manufacturers and distributors. New orders in June 2010 were 9 percent higher than June 2009. The results for the month were in line with what we had been hearing – that being that business is just bumping along – not really good results but not that bad.

For the month, approximately 52 percent of the participants reported increases in orders but, by company, the percentage increases and decreases varied significantly. 

Year-to-date, new orders remained at 5 percent ahead of the first six months of 2010.  June 2010 year-to-date orders were up 10 percent over the first half of 2009, so at least we are comparing to better results last year. Some 62 percent of the participants are reporting increased orders year-to-date, down slightly from 64 percent last month. But several participants are just slightly below last year. 

Shipments and Backlogs 

Shipments were 2 percent higher than June 2010 when shipments were up 13 percent over June 2009.  Shipments in June were 4 percent higher than May 2011.  Approximately 64 percent of the participants reported increased shipments for the month. 

Year-to-date, shipments remained 3 percent ahead of last year. Year-to-date June 2010 shipments were 7 percent ahead of the first six months of 2009.

Backlogs fell 5 percent from May 2011 as shipments exceeded new orders. Backlogs in June 2011 were 1 percent lower than June 2010 levels down from a 3 percent increase reported last month.
Receivables and Inventories

Receivable levels were down 3 percent from June 2010 and down 4 percent from May 2011. Last month, receivables were 3 percent higher than May 2010 so we believe some of these changes are a matter of timing. At least, overall receivables levels appear to be in good shape.

Inventory levels were 6 percent higher than June 2010 and down from an 11 percent increase reported last month. That is certainly a step in the right direction as inventories had built up in anticipation of better business, which did not come. We realize it is difficult to manage with business like it is as many retailers, designers and decorators want the goods quickly. If we just knew in advance exactly what and when they would order.

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees in June remained level with May 2011 but were down 2 percent from June 2010. This was consistent with the May to May comparisons. June 2010 employees were 2 percent higher than June 2009.

Factory and warehouse payrolls were up 3 percent from June 2010 up from a 1 percent increase reported last month. Year-to-date factory and warehouse payrolls were up 2 percent over the prior year. This increase is certainly in line with new orders and shipments and business conditions in general.


Consumer Confidence

According to The Conference Board, the Consumer Confidence Index®, which had improved slightly in July, fell in August. The Index now stands at 44.5 (1985=100), down from 59.2 in July. The Present Situation Index decreased to 33.3 from 35.7. The Expectations Index decreased to 51.9 from 74.9 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence deteriorated sharply in August, as consumers grew significantly more pessimistic about the short-term outlook. The index is now at its lowest level in more than two years (April 2009, 40.8). A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade. Consumers’ assessment of current conditions, on the other hand, posted only a modest decline as employment conditions continue to suppress confidence.”

Consumers’ appraisal of present-day conditions weakened further in August. Consumers claiming business conditions are “bad” increased to 40.6 percent from 38.7 percent, while those claiming business conditions are “good” inched up to 13.7 percent from 13.5 percent.

Consumers’ assessment of employment conditions was more pessimistic than last month. Those claiming jobs are “hard to get” increased to 49.1 percent from 44.8 percent, while those stating jobs are “plentiful” declined to 4.7 percent from 5.1 percent.

Consumers’ short-term outlook deteriorated sharply in August. Those expecting business conditions to improve over the next six months decreased to 11.8 percent from 17.9 percent, while those expecting business conditions to worsen surged to 24.6 percent from 16.1 percent.

Consumers were also more pessimistic about the outlook for the job market. Those anticipating more jobs in the months ahead decreased to 11.4 percent from 16.9 percent, while those expecting fewer jobs increased to 31.5 percent from 22.2 percent.

Leading Economic Indicators

According to The Conference Board, the Leading Economic Index® (LEI) for the U.S. increased for a third consecutive month in July. Gains in the financial components and average weekly initial claims for unemployment insurance (inverted) offset the large negative contributions from vendor performance and consumer expectations. In the six-month period ending July 2011, the leading economic index increased 2.9 percent (about a 6.0 percent annual rate), slightly slower than the growth of 3.2 percent (about a 6.5 percent annual rate) during the previous six months. However, the strengths among the leading indicators have been more widespread than the weaknesses recently.

The Conference Board Coincident Economic Index® (CEI) for the U.S., a measure of current economic activity, increased as well in July, led by gains in industrial production and employment. The index rose 0.8 percent (about a 1.6 percent annual rate) between January and July 2011, below the growth of 1.2 percent (about a 2.4 percent annual rate) for the previous six months. However, the strengths among the coincident indicators have been widespread in recent months.

Six of the ten indicators that make up The Conference Board LEI for the U.S. increased in July. The positive contributors – beginning with the largest positive contributor – were real money supply, the interest rate spread, average weekly initial claims for unemployment insurance (inverted), stock prices, manufacturers’ new orders for nondefense capital goods, and manufacturers’ new orders for consumer goods and materials. The negative contributors – beginning with the largest negative contributor – were the index of supplier deliveries (vendor performance), the index of consumer expectations, and building permits. Average weekly manufacturing hours held steady in July.

Existing-Home Sales

Existing-home sales declined in July from an upwardly revised June pace but are notably higher than a year ago, according to the National Association of Realtors® (NAR). Monthly gains in the Northeast and Midwest were offset by declines in the West and South.

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.5 percent to a seasonally adjusted annual rate of 4.67 million in July from 4.84 million in June, but were 21.0 percent above the 3.86 million unit pace in July 2010, which was a cyclical low immediately following the expiration of the home buyer tax credit.

Single-family home sales declined 4.0 percent to a seasonally adjusted annual rate of 4.12 million in July from 4.29 million in June, but were 21.5 percent above the 3.39 million level in July 2010. The median existing single-family home price was $174,800 in July, down 4.5 percent from a year ago.

Lawrence Yun, NAR chief economist, said there is a tug and pull on the market. “Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” he said. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. said an unacceptably high number of potential home buyers are unable to complete transactions. “For both mortgage credit and home appraisals, there’s been a parallel pendulum swing from very loose standards which led to the housing boom, to unnecessarily restrictive practices as an overreaction to the housing correction,” he said.

“Beyond the tight credit problems, all appraisals must be done by valuators with local expertise and using reasonable comparisons it doesn’t make sense to consistently see so many valuations coming in below negotiated prices, often below replacement construction costs,” Phipps said. 

Total housing inventory at the end of July fell 1.7 percent to 3.65 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, up from a 9.2-month supply in June.
Regionally, existing-home sales in the Northeast rose 2.7 percent to an annual level of 750,000 in July and were 19.0 percent above July 2010. The median price in the Northeast was $245,600, down 6.8 percent from a year ago.

Existing-home sales in the Midwest increased 1.0 percent in July to a pace of 1.05 million and were 31.3 percent above a year ago. The median price in the Midwest was $146,300, down 2.9 percent from July 2010.

In the South, existing-home sales declined 1.6 percent to an annual level of 1.84 million in July but were 19.5 percent above July 2010. The median price in the South was $152,600, which is 2.2 percent below a year ago.

Existing-home sales in the West fell 12.6 percent to an annual pace of 1.04 million in July but were 16.9 percent above a year ago. The median price in the West was $208,300 down 7.1 percent from July 2010.

New Residential Sales
Sales of new single-family houses in July 2011 were at a seasonally adjusted annual rate of 298,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent below the revised June rate of 300,000, but is 6.8 percent above the July 2010 estimate of 279,000.

The median sales price of new houses sold in July 2011 was $222,000; the average sales price was $272,300. The seasonally adjusted estimate of new houses for sale at the end of July was 165,000. This represents a supply of 6.6 months at the current sales rate.

Regionally, comparing July 2011 to July 2010, sales of new homes were up 45.5 percent in the West, flat in the Midwest and South and down 3.4 percent in the Northeast.

Housing Starts

According to the U.S. Census Bureau News, privately-owned housing starts in July were at a seasonally adjusted annual rate of 604,000. This was 1.5 percent below the revised June estimate of 613,000, but is 9.8 percent above the July 2010 rate of 550,000.

Single-family housing starts in July were at a rate of 425,000; this was 4.9 percent below the revised June figure of 447,000.

Comparing July 2011 to 2010, single unit starts were up 0.4 percent in the South and 18.2 percent in the West, while there were declines of 18.7 percent in the Northeast and 14.5 percent in the Midwest.

Retail Sales

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $390.4 billion, an increase of 0.5 percent from the previous month, and 8.5 percent above July 2010. Total sales for the May through July 2011 period were up 8.2 percent from the same period a year ago.

Retail trade sales were up 0.5 percent from June 2011, and 8.9 percent above last year. Gasoline stations sales were up 23.6 percent from July 2010 and nonstore retailers sales were up 14.1 percent from last year.
Sales at furniture and home furnishings stores were up 1.1 percent (on an adjusted basis) comparing July 2011 to July 2010 and were up 0.5 percent from June 2011. Year-to-date, sales at these stores were up 0.2 percent.

Consumer Prices

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 3.6 percent before seasonal adjustment.

The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose.

The index for all items less food and energy increased as well, though the 0.2 percent increase was slightly smaller than the two previous months. The shelter index accelerated in July, and the apparel index again increased sharply. In contrast, the index for new vehicles was unchanged after a long string of increases. The index for household furnishings and operations was flat in July as well, and the recreation index declined slightly.

The 12 month change in the all items index remained at 3.6 percent for the third month in a row. The change in the index for all items less food and energy continued its upward trend, rising to 1.8 percent in July, with the shelter and apparel indexes contributing notably to the acceleration. The energy index has risen 19.0 percent over the past year.


Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1 percent, according to the U.S. Bureau of Labor Statistics. Job gains occurred in health care, retail trade, manufacturing, and mining. Government employment continued to trend down.

The number of unemployed persons (13.9 million) changed little in July. Since April, the unemployment rate has shown little definitive movement. The labor force, at 153.2 million, was little changed in July. The number of unemployed for less than 5 weeks declined by 387,000 in July.

Durable Goods Orders and Factory Shipments

The U.S. Census Bureau reported that new orders for manufactured durable goods in July increased $7.7 billion or 4.0 percent to $201.5 billion. This increase, up two of the last three months, followed a 1.3 percent June decrease. Excluding transportation, new orders increased 0.7 percent. Excluding defense, new orders decreased 4.8 percent.

Shipments of manufactured durable goods in July, up seven of the last eight months, increased $5.0 billion or 2.5 percent to $202.2 billion. This followed a 1.1 percent June increase.

According to the U.S. Census Bureau, orders for the furniture and related products category in June 2011 increased 5.0 percent from last June and 8.5 percent year-to-date. Shipments in June were up 5.3 percent over June 2010 and 8.3 percent year-to-date.

Consumer Credit

According to the Federal Reserve Statistical Release, consumer credit increased at an annual rate of 4¼ percent in the second quarter. In June, consumer credit increased at an annual rate of 7¾ percent, with revolving credit increasing at a rate of 8 percent and nonrevolving credit increasing at a rate of 7½ percent.


The results from our participants for June were in line with our expectations. New orders up 1 percent and shipments up 2 percent were pretty much as most described as bumping along. At least we were comparing to a pretty strong showing in June a year ago when orders were up 9 percent and shipments were up 13 percent from 2009. Still, we had dug a pretty deep hole in 2007 and 2008 so the increases only got us back some of what we had lost.

Again this month, as with the last several, the results of participants vary significantly. Even reviewing results on a year-to-date basis to take out monthly swings, we see results of a positive increase in orders in double digits to negatives of well in to double digits.

From a total economy standpoint, furniture just does not seem to have any traction. According to the government reports for retail sales, furniture is 12th in the 13 categories they track, with 0.2 percent growth. Only electronics and appliances stores are worse with a negative 0.3 percent growth rate. Most other categories, outside the outliers, such as motor vehicle and parts dealers, are showing growth in the 5 percent range.

We read the other day that one person’s opinion is that “rather than an economic recession, we seem to be experiencing a confidence recession” (as evidenced by the latest consumer confidence report). We think that is certainly true when looking at corporate profitability along with other economic factors.

Consumers are hearing so much negative news; they do not feel comfortable spending on bigger ticket deferrable purchase items. Add to that the difficulty some people are having with obtaining mortgages, housing cannot get much momentum. Clearly housing improvement would not only help furniture sales, but also employment.

Unfortunately, instead of maybe a six month vacation that Washington needs (or rather we need them to stay away that long), we will have until November 2012 to listen to more negative comments.
With all that said, we do believe that most manufacturers and distributors have adjusted. If we can get just a little more top line growth, we should see profitability improve.


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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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.

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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.

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