Furniture Insights/ Monthly Forecaster
from BDO Seidman
New Orders. According to our recent survey of residential furniture manufacturers, new orders in February fell 1 percent from February 2004, but were up 4 percent over January 2005. This was the second straight month that orders declined 1 percent compared to the prior year after increases in November and December.
The 1 percent decline was not considered all that bad considering that new orders in February 2004 were 16 percent higher than February 2003. Admittedly, the February 2004 numbers were compared to a poor performance in February 2003 when orders were off 12 percent from the year before. Even with that in mind, the 1 percent decline did not seem all that alarming.
Year-to-date, new orders are down 1 percent from the first two months of 2004. As with the month of February, the results were compared to a strong 2004 first two months when new orders were up 13 percent compared to those same months in 2003.
As has been the case for quite some time, the results were mixed. Some 38 percent of our participants reported an increase in orders for February compared to 31 percent reporting an increase for both months. The increase in the percentage does indicate some improvement for more of the participants.
Shipments and Backlogs. Shipments in February increased 2 percent over February 2004 and increased 9 percent over January 2005. Shipments in February 2004 were up 8 percent over February 2003, so the February 2005 increase added to good results last year.
Year-to-date, shipments increased 4 percent over the first two months of 2004. The first two months of 2004 were 5 percent higher than 2003—again a nice add on. More participants reported increases in shipments with 50 percent of the participants reporting increased shipments in February compared to February 2004.
Backlogs fell slightly from January levels and decreased 5 percent from February 2004 levels, as shipment levels exceeded new orders.
Receivables and Inventories. Receivables in February increased 3 percent over last February and increased 5 percent over January 2005 levels. Both increases were reasonable compared to shipments.
Inventories fell 2 percent from January 2005 levels. Inventories were 8 percent higher than February 2004 levels. January 2005 inventories were 10 percent higher than January 2004. In February 2004, inventories were 3 percent lower than February 2003. It appears that inventories are in reasonable shape, again considering the inventory programs that many companies are now attempting, but there is still some concern that case good inventories may be too high, especially considering new introductions that have not been made yet.
Payrolls and Employment. Factory payrolls fell 3 percent in February from February 2004 levels and also decreased 3 percent from January 2005. The number of factory employees fell again in February.
We have not seen an increase in the number of factory employees comparing year-to-year since August 2000. The number of factory employees continues to decline as more and more production has shifted offshore and companies continue to balance their domestic versus imported products or parts.
The Beige Book report for April (the report from the twelve Federal Reserve Districts) continued to indicate expanded business activity through early April. Kansas City, San Francisco and Atlanta reported solid growth. Chicago and Dallas characterized their growth as moderate. New York and Cleveland noted positive growth, although the growth was uneven across sectors, and Richmond noted signs of improvement following a “restrained” March.
More than one-half of the districts reported that retail activity was up, from modestly to strongly. Chicago, Dallas and Cleveland reported disappointing retail sales.
The Conference Board reported that the U.S. leading index decreased 0.4 percent in March, while the coincident index increased 0.2 percent and the lagging index decreased 0.1 percent.
The leading index declined in March after a small increase in February, following a 0.3 percent decline in January. Two of the ten indicators that make up the leading index increased in March— interest rate spread and manufacturers’ new orders for consumer goods and materials. All the other indicators declined, led by average weekly initial claims for unemployment insurance.
All four indicators that make up the coincident index increased in March, led by personal income and employees on non-agricultural payrolls.
The Conference Board’s Consumer Confidence Index fell to 102.4 in March, down from 104.4 in February. The Present Situation Index fell from 116.8 to 115.6 in March while the Expectations Index declined to 93.7 from 96.1 last month.
“Consumers are still quite confident despite recent increases in unemployment claims and rising prices at the gas pump,” said Lynn Franco, Director of the Conference Board’s Consumer Research Center. “Their overall assessment of current economic conditions remains favorable and their short-term outlook suggests little change in the months ahead. In fact, while expectations have lost ground, consumers anticipate the job market will continue to improve, and easing employment concerns should help keep spending on track.”
According to the University of Michigan’s Surveys of Consumers, confidence posted a small decline in March due to concerns over gas prices and rising interest rates. “Although the overall level of confidence has remained at a relatively high level, the details indicate a significant shift in consumer spending is underway,” said Richard Curtin, the Director of the Survey.
This survey noted that consumers held the least favorable attitudes towards buying conditions for homes and vehicles in five years, while voicing the most favorable views towards a wide range of household durables, including furniture (it’s about time), appliances, and home electronics.
Existing home sales rose to near-record levels in March with continued growth in prices according to the National Association of Realtors (NAR). Total existing home sales, including single family, town homes, condominiums and co-ops—increased 1.0 percent in March to a seasonally adjusted rate of 6.89 million from an upwardly revised level of 6.82 million in February.
March sales were the third highest level on record and were 4.9 percent above March 2004 estimates. The report indicated that historically low mortgage rates continue to lift the confidence of buyers. There was some indication that there needs to be a bigger supply of homes to give buyers more choices. Inventory levels fell 0.2 percent at the end of March to a 4.0-month supply.
Sales of existing single-family homes rose 1.2 percent above February and were 4.5 percent higher than March 2004. The median price for single-family homes was $193,600 in March, up 11.3 percent over last year.
Sales of new one-family houses in March were 12.2 percent above the revised February rate. March 2005 sales were 12.7 percent higher than March 2004, with the median selling price at $212,300.
Single-family housing starts in March 2005 were at a rate of 1,539,000 or 14.4 percent below February and 8.2 percent below the March 2004 starts.
Total non-farm payroll employment increased by 110,000 in March and the unemployment rate declined to 5.2 percent. Most of the jobs were added in construction, mining, health care and wholesale trade.
Both the number of unemployed persons, 7.7 million, and the unemployment rate decreased in March. The unemployment rate was down from 5.7 percent a year earlier. In March, 21.5 percent of the unemployed had been unemployed for 27 weeks or more.
Retail Sales and Consumer Prices
The U.S. Census Bureau released advanced estimates of U.S. retail and food services sales for March indicating an increase of 0.3 percent, adjusted for seasonal variation and holiday and trading day differences, but not for price changes. March estimates were 5.8 percent above March of 2004. Total sales for the first quarter were up 7.2 percent over the same period a year ago.
Retail trade sales were up 0.4 percent from February and 5.8 percent higher than March 2004. Gasoline station sales were up 17.8 percent from last year and sales of non-store retailers were up 13.4 percent from last year.
For the quarter ended March, auto and other motor vehicle dealers were up 3.3 percent, building materials and garden equipment and supplies dealers were up 9.7 percent.
Sales at furniture and home furnishings stores were up 2.4 percent for the quarter on a non-adjusted basis. Sales at these stores in March were up only 1.9 percent over March 2004, again on a non-adjusted basis.
The Consumer Price Index for all Urban Consumers (CPI-U) increased 0.8 percent in March, before seasonal adjustment. The March level was 3.1 percent higher than in March 2004.
For the first quarter of 2005, consumer prices increased at a seasonally adjusted rate (SAAR) of 4.3 percent. This compares to an increase of 3.3 percent for all of 2004. The index for energy, which rose 16.6 percent in 2004, increased at a 21.1 percent SAAR in the first quarter and accounted for about three-eighths of the first quarter increase in the overall CPI-U. Petroleum-based energy costs increased at a 39.6 percent annual rate.
Excluding food and energy, the CPI-U increased at a 3.3 percent SAAR in the first quarter following a 2.2 percent increase in all of 2004. The report indicated that about 70 percent of the increase was accounted for by a larger increase in the index for shelter—up 4.4 percent in the first quarter.
The results for February and some of the recent news have not been too exciting. The Stock Market is certainly not helping matters and fears of inflation and higher interest rates keep consumers concerned.
Yet, we thought the University of Michigan Survey had some positive news for the furniture industry. The report indicated that the consumers they surveyed are pulling away from buying big-ticket items such as homes and cars, but were looking to buy household durables.
We have said for some time that the housing boom has created opportunities for furniture sales that have not yet materialized. One of the reasons for lack of consistent growth has been that consumers have been tempted by big-ticket items with low interest rates and deals on vehicles. As things settle down in these categories, purchases of furniture may very well pick up.
We hope your Furniture Market experience was a good one. Overall, the Market was probably best characterized as “okay,” although some were very pleased with their results. Over the next few weeks, we will see just how good it was.
About BDO Seidman: BDO Seidman, LLP is a national professional services firm providing assurance, tax, financial advisory and consulting services to private and publicly traded businesses. For more than 90 years, the company has provided quality service and leadership through the active involvement of our most experienced and committed professionals.
BDO Seidman serves clients through more than 35 offices and 250 independent alliance firm locations nationwide. Their Furniture Industry Services practice publishes Furniture Insights®. For more information go to http://www.bdo.com.
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