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Furniture Forecast From BDO Seidman - March 2003 Orders Up 3%

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Furniture Insights/ Monthly Forecaster from BDO Seidman May 2005 New Orders. According to our most recent survey of residential furniture manufacturers, new orders in March 2005 were 3 percent higher than March 2004 orders. New orders in March were 9 percent higher than February 2005. The increase in orders in March followed two consecutive months of declining orders. The increase in March orders was also impressive considering that orders in March 2004 were 18 percent higher than March 2003 levels, (understanding that March 2003 order rates were off significantly from the year before). Year-to-date, new orders are now slightly ahead of the first quarter of 2004. For comparison, new orders in the first quarter of 2004 were 15 percent higher than the first quarter of 2003. The good news for March was that 45 percent of the participants reported an increase in orders for the month compared to only 38 percent in February. Shipments and Backlogs. Shipments in March increased 4 percent over March 2004 and increased 16 percent over February. The increase over February is somewhat normal with March usually having more working days. Year-to-date, shipments were up 4 percent over the first quarter of 2004. Some 40 percent of the participants reported an increase in shipments in March, down from almost one-half in February. Almost half the participants have reported an increase year-to-date. With shipments at a higher rate than new orders, backlogs fell 2 percent from last March. Backlogs also fell 1 percent from February levels. Receivables and Inventories. Receivables in March increased 3 percent over March 2004 levels and increased only 2 percent from February levels. With shipments up 4 percent in March and up 4 percent year-to-date, the increase of 3 percent seems very reasonable. Inventories fell 1 percent from February levels, but remained 8 percent higher than last year’s levels. The inventory levels remain somewhat high compared to order rates and shipment levels, but have remained fairly consistent. Overall, levels do not seem significantly out of line in light of current strategies and conditions. Payrolls and Employment. Factory payrolls increased 2 percent over March 2004 levels and were up 13 percent over February. Again, the increase from February results primarily from March having more working days for most companies. Year-to-date payrolls are up 1 percent over last year and appear to be reasonable compared to shipments and orders. The number of factory employees were down 6 percent compared to 7 percent last month. With payrolls up and employees down, it continues to appear that the factory employees are working more hours. National According to advanced estimates of the Bureau of Economic Analysis, the real gross domestic product_-the output of goods and services produced by labor and property located in the U.S.-_ increased at an annual rate of 3.1 percent in the first quarter of 2005. This increase compares to a 3.8 percent increase in the fourth quarter of 2004. The major contributors to the increase in the first quarter were personal consumption expenditures (PCE), private inventory investment, exports, equipment and software, and residential fixed investment. Imports, which are a subtraction in the calculation, increased. The deceleration in the growth rate reflected a deceleration in equipment and software, along with an acceleration in imports and a deceleration in PCE that were partially offset by accelerations in private inventory investment and in exports. Economic Indicators The Conference Board announced in May that the U.S. leading index of economic indicators declined 0.2 percent, while the coincident index increased 0.2 percent and the lagging index increased 0.4 percent. The leading index fell for the fourth consecutive month after a revision to February’s index changed it from a small increase to a decrease. The leading index is now down 1 percent annualized over the last six months with more weaknesses than strengths among the components. The leading index has been increasing since the end of 2001, but there have been breaks in the trend-_once from May to October 2002, and again from June to October 2004. The Board noted that, “the recent weakness of the leading index is consistent with the economy continuing to expand in the near term, but at a slower pace.” Five of the ten indicators that make up the leading index increased in April-_led by average weekly claims for unemployment insurance (inverted), building permits, average weekly manufacturing hours, manufacturers’ new orders for non-defense capital goods, and manufacturers’ new orders for consumer goods and materials. The negatives were led by index of consumer expectations, real money supply, interest rate spread, stock prices and vendor performance. Consumer Confidence The Conference Board’s Consumer Confidence Index fell again in April to 97.7 from 103.0 in March. The Present Situation Index declined to 113.6 from 117.0. The Expectations Index fell to 87.2 from 93.7. Lynn Franco, Director of the Conference Board’s Consumer Research Center said, “Less robust current conditions and a more cautious outlook have consumers feeling less confident in April than in March. Despite the decline, the Present Situation Index remains at levels indicative of a healthy economy. However, the Expectations Index is now at the lowest level since July 2003 when it registered 86.3. Looking ahead, consumers do not anticipate an improvement in economic growth in their incomes.” The University of Michigan’s Surveys of Consumers also reported a decline in confidence in April, their fourth consecutive monthly decline. Their Sentiment Index fell to its lowest level since September 2003. “The recent loss in consumer confidence was due to heightened concerns about rising inflation, higher interest rates and slower job growth,” according to Richard Curtin, the Director of the University’s survey. Rising gas prices have weakened the finances of consumers. “One in five consumers specifically cited the negative impact of rising prices when asked about their current financial situation, the highest level recorded since 1991,” Curtin said. The report indicated that consumers’ outlook for the future was just as bleak, as consumers expect the worst change in their personal finances in a decade. “This negative outlook was largely reflected in their expectations that prices would rise faster than their incomes during the year ahead,” Curtin noted. The report indicated that the rise in gas prices was giving consumers a reason to postpone vehicle purchases, although home sales continue to be dominated by the desire to purchase before interest rates increase. Housing Existing home sales rose to a record high in April in spite of recent expectations for a slower growth trend. According to the National Association of Realtors (NAR), single-family home sales rose 4.5 percent in April to a record seasonally adjusted annual rate of 6.28 million from a level of 6.01 million in March. April 2005 sales were 5.0 percent higher than the pace of April 2004. The median single-family home price was $203,800 in April, up 15.1 percent from April 2004. David Lereah, NAR’s chief economist said, “A new record is a bit unexpected, but so is the performance of mortgage interest rates which have been lower than forecast. When we look at recent job gains, we see positive factors coming together to coincide with a powerful demographic demand for housing.” Single-family housing starts in April were at a rate of 1,635,000, some 6.3 percent above the revised March numbers of 1,538,000. Single-family building permits were also up in April, rising 5.3 percent above the March results on a seasonally adjusted annual rate. Employment Employment rose in April with non-farm employment increasing by 274,000 jobs over the month. The unemployment rate was unchanged at 5.2 percent. The unemployment rate was 5.5 percent in April 2004. The number of unemployed persons--7.7 million--was unchanged from the March results. The number of long-term unemployed-_27 weeks and over--was also about the same as March, representing 21.2 percent of the unemployed. Retail Sales and Consumer Prices The U.S. Census Bureau released its advance estimates of U.S. retail and food service sales for April, adjusted for seasonal variation and holiday and trading day differences, but not for price changes. The report indicated a 1.4 percent increase from March and an 8.6 percent increase over April 2004. Sales for the three months ended April were 7.5 percent above the same period a year ago. Retail trade sales were up 1.4 percent from March and 8.7 percent higher than April 2004. Sales of non-store retailers were up 12.4 percent over last year. For the four months ended April 2005, sales at furniture and home furnishings stores were up 2.8 percent over last year. April sales on an adjusted basis were essentially flat with March, but were up 3.1 percent over April a year ago. The Consumer Price Index for all Urban Consumers (CPI-U) increased 0.7 in April. The April level was 3.5 percent higher than April 2004. On a seasonally adjusted basis, the CPI-U rose 0.5 percent, following a 0.6 percent increase in March. Energy costs rose for the third consecutive month, up 4.5 percent in April. Within energy, the index for petroleum-based energy increased 6.3 percent. Durable Goods Orders and Factory Shipments The advance reports from the U.S. Census Bureau indicated that new orders for manufactured durable goods increased 1.9 percent in April. This followed a 1.6 percent decrease in March. Excluding transportation, new orders decreased 0.2 percent. Excluding defense, new orders increased 2.5 percent. Transportation equipment had the largest increase following four consecutive monthly declines. This category was led by non-defense aircraft and parts. Shipments of manufactured durable goods, up six of the last seven months, increased 1.6 percent in April. This followed a 0.2 percent increase in March. Year-to-date, shipments of durable goods are up 6.1 percent over last year. Orders are up 4.3 percent for the first four months. Summary The results for March were generally favorable and somewhat consistent with the street talk we heard in March. After an “okay” Market for most, business currently seems to be bumping along. Some companies we have talked with are doing very well, while others feel business remains soft. As with current business, Market was somewhat mixed with some reporting record markets. Others were very pleased at the beginning of Market, but as traffic died down later in the week, the results were not as exciting. We continue to believe that 2005 will probably look very much like the economy in general with modest growth for the year. 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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