Furniture Insights/ Monthly Forecaster
from BDO Seidman June 2005
New Orders. According to our most recent survey of residential furniture manufacturers, new orders in April 2005 increased 9 percent over April 2004. The April 2004 orders were 2 percent higher than April 2003 results. April marked the second consecutive month of increases following two months of declining order rates in January and February.
Year-to-date, new orders are now up 2 percent over last year’s first four months, after being basically flat for the first quarter.
Some 53 percent of the participants reported increases in orders in April with some reporting significant double digit increases. The other good news was that the 53 percent of participants reporting an increase, was up from 45 percent in March and 38 percent in February.
Year-to-date, 41 percent of the participants have reported increases in new orders.
Shipments and Backlogs. In April 2005, shipments increased 5 percent over April 2004. Year-to-date, shipments increased 4 percent over the first four months of last year, the same as the results through March 2005.
Similar to new orders, 53 percent of the participants reported an increase in shipments. This compared to only 40 percent of the participants reporting an increase in March. Year-to-date, almost half the participants have reported an increase in shipments.
Backlogs were slightly ahead of last year’s April levels. Backlogs fell slightly from March levels.
Receivables and Inventories. Receivables were up 3 percent over April 2004 levels, very much in line or even better than expected. With shipments up 5 percent over last April and year-to-date shipments up 4 percent, the 3 percent increase in April indicated that receivables levels are in good shape for most companies.
Inventories were 6 percent higher in April 2005 than April 2004 levels. This increase compared to a March increase of 8 percent. The April results make inventory levels somewhat more in line with order rates, especially considering some increases being created on purpose to better service customers.
Payrolls and Employment. Factory payrolls increased 2 percent over April 2004 levels and remained 1 percent higher year-to-date. The number of factory employees fell 4 percent from last April, but were even with March. The 4 percent decline in April compares to a 6 percent decline comparing March 2005 to March 2004.
We believe that most companies are continuing to adjust the number of factory employees to what they believe their domestic production levels need. Most appear to continually adjust their domestic and import balance.
The final report from the Bureau of Economic Analysis indicated that the Gross Domestic Product (GDP) — the output of goods and services produced by labor and property located in the U.S. — increased at an annual rate of 3.8 percent in the first quarter of 2005. This increase compares to the 3.8 percent increase in the fourth quarter. Preliminary estimates indicated a growth rate of 3.1 percent.
The major contributors to the increase in GDP in the first quarter were personal consumption expenditures (PCE), exports, private inventory investment, residential fixed investment and equipment and software. Imports, which are a subtraction in the calculation of GDP, increased.
Compared to the fourth quarter increase in GDP, acceleration in exports, residential fixed investment and private inventory investments and a deceleration in imports were offset somewhat by deceleration in equipment and software and in PCE.
The Conference Board announced that in May, the U.S. leading index decreased 0.5 percent, while the coincident index increased 0.2 percent and the lagging index increased 0.3 percent.
The leading index fell after a revised no change in April. The leading index has now declined at a 2.2 percent annual rate over the last six months and has dropped 1.9 percent over the last twelve months.
Only one of the ten indicators increased in May — that being stock prices. The negative contributors were led by interest rate spread, average weekly initial claims for unemployment (inverted), building permits and vendor performance.
All four indicators in the coincident index increased in May. The gains were led by industrial production and personal income. During the six months period ended in May, the coincident index increased 1.1 percent.
The Conference Board’s Consumer Confidence Index, which had increased in May, increased again in June. This followed two months of declines. The Index stood at 105.8 in June, up from 103.1 in May and 97.7 in April. The Present Situation Index increased to 120.7 from 117.8. The Expectations Index rose to 95.8 from 93.4 last month.
The June results marked a three-year high for the Index. Lynn Franco, Director of the Conference Board’s Consumer Research Center said, “The improvement in consumers’ mood suggests that business activity and labor market activity will continue to pick up over the next several months. And, with consumers in better spirits, and job concerns remaining relatively steady, there is little reason to expect a dramatic shift in consumer spending.”
The report indicated that for the first time in nearly three years, the percentage of consumers saying jobs are “hard to get” does not exceed the percentage saying jobs are “plentiful.”
Sales of existing homes were at the second highest pace on record in May. Total existing home sales—including single family, townhouses, condominiums and co-ops fell to a seasonal adjusted rate of 7.13 million down slightly from the record pace of 7.18 million set in April. Sales were 3.5 percent above the May 2004 levels.
David Lereah, NAR’s chief economist, said, “Most of the stars continue to be correctly aligned for the housing market. An ongoing problem is the tight supply of homes available for sale, which is pushing gains in home prices.”
The national median existing home price for all housing types was $207,000 in May, up 12.5 percent over the May 2004 median of $184,000.
Sales of new one-family houses in May 2005 were at a seasonally adjusted annual rate of 1,298,000 according to the U.S. Census Bureau. This was 2.1 percent above the revised April rate of 1,271,000 and 4.4 percent higher than May 2004. The median price of new homes sales was $217,000 in May.
Interestingly, sales of new homes in May were down 28.2 percent from May 2004 in the Northeast while sales were up 28.2 percent in the Mid-west. Sales were up 3.8 percent the South and up 0.8 percent in the West.
Privately-owned housing starts were at a seasonally adjusted annual rate of 2,009,000. This was 0.2 percent above the revised April estimate and 1.8 percent above the May 2004 rate. Single-family housing starts were up 4.7 percent above April.
Non-farm employment increased 78,000 in May after an increase of 274,000 in April. The unemployment rate dropped to 5.1 percent from 5.2 percent last month.
The growth in jobs was primarily in health care and construction, but was little changed in most other industry sectors. The number of unemployed persons in May was 7.6 million versus 7.7 million in April.
Retail Sales and Consumer Prices
According to the U.S. Census Bureau, advance estimates of U.S. retail and food services sales for May indicated a decrease of 0.5 percent from April, but increased 6.4 percent over May 2004. Total sales for March through May were up 7.1 percent from the same period a year ago.
Retail trade sales declined 0.5 percent from April, but were 6.3 percent ahead of May 2004. Gasoline station sales were up 13.4 percent from May 2004 and sales of non-store retailers were up 11.9 percent from last year.
Sales at retail furniture and home furnishings stores were up 0.3 percent over April on a seasonally adjusted basis and were up 7 percent over last May. Year-to-date, sales at these stores were up a reported 3.7 percent for the five months.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in May, before and after seasonal adjustment. This followed a 0.5 percent increase in April. Energy costs, which were up sharply in the previous three months, declined 2 percent in May, but that will likely change in June.
The index for food rose 0.1 percent following a 0.7 percent increase in April. The index for all items, less food and energy, increased 0.1 percent in May after no substantial change in April.
Durable Goods Orders and Factory Shipments
Advanced reports from the U.S. Census Bureau indicated that new orders for manufactured durable goods increased 5.5 percent in May. This followed a 1.4 percent increase in April. Excluding transportation, new orders decreased 0.2 percent. Excluding defense, new orders increased 5.3 percent.
Transportation equipment increased 21.2 percent. This was led by non-defense aircraft and parts.
Shipments of manufactured durable goods decreased 0.2 percent in May following two months of increases. Transportation equipment was down 1 percent.
According to this report, new orders for furniture and related products increased 5.5 percent over last April. Year-to-date, new orders were up 8.2 percent. Shipments of these products were up in April 11.8 percent over last April and increased 9.9 percent year-to-date.
The results for April were somewhat better than expected. With orders continuing to show growth, following a reasonably decent growth year in 2004, business seems to be decent. Most people we talk to describe business as “o.k.,” but certainly not great.
With retail growth somewhat steady, a major factor for most manufacturers is getting your share. Since the industry is somewhat over capacitied, getting “your share” is not all that easy.
As we noted earlier, the growth this year is not happening across the board. Our survey continues to have very wide swings on a monthly and year-to-date basis for our participants. The good news is that the percentage of participants showing growth has been growing. That certainly needs to continue.
The improvement in consumer confidence was really good news especially in light of higher gas prices. With the housing market strong, the best chance for furniture sales seems to be when confidence is high. We hope these levels can continue to grow.
Our annual operating statistics survey and outlook for the rest of 2005 and 2006 has just been completed. Overall the survey indicated a slight decline in operating profits in 2004 after a 1.4 percent decline the previous year. For participants who participated in both years’ surveys, the decline for 2004 was more severe.
We expect growth in shipments in 2005 to be in the 3 to 4 percent range. For 2006, the growth rate in shipments is projected at about 1 percent. We hope those are conservative projections. If consumer confidence will hold for a while, they may very well be conservative.
FAVORABLE: Consumer Confidence, Existing Home Sales, Housing Starts, Consumer Spending, New Home Sales
Retail Sales, Unemployment, Automobile Sales,Capital Outlays, Durable Goods Orders, Factory Shipments.
UNFAVORABLE: Consumer Prices,Consumer Debt, Producer Prices, Interest Rates.
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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