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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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Monthly Results New Orders: According to our most recent survey of residential furniture manufacturers and distributors, new orders in April were 12 percent higher than new orders in April 2006. While that looks like great news, the 12 percent increase compared to a 13 percent decrease last year comparing April 2006 to April 2005. We believe these swings were caused by the High Point Market dates. In 2006, the April Market dates were April 27 to May 3. The 2007 April dates were March 26 to April 1. It appears that April 2006 market orders were captured in May 2006 while the April 2007 market orders were recorded in April. We had a revision to some prior months’ numbers that were previously reported on the year-to-date orders and shipments. The first quarter orders were down 7 percent compared to the first quarter of 2006. With April’s increase, new orders were off only 3 percent but we expect to see a decline in May if our assumptions about Market orders are correct. Shipments and Backlogs: Shipments in April were 4 percent lower than April 2006 continuing to reflect lower order rates. Shipments were 12 percent below March levels, a somewhat normal occurrence. Year-to-date, after reflecting the revisions noted above, shipments were 7 percent lower than the first four months of 2006. This result appears to be in line with the reduced orders through March. Similar to last month’s report, shipments year-to-date were lower for 72 percent of the participants. Backlogs were 3 percent higher than last April and 1 percent higher than March 2007. Receivables and Inventories: Receivables were 5 percent lower in April compared to April 2006 but were even with March levels even with the decline of shipments from March to April. The 5 percent compares reasonably well with the 4 percent decline in shipments April over April, but is a bit concerning when compared to the 7 percent decline year-to-date in shipments. These levels will need to be watched as business at retail remains sluggish. Inventories were 9 percent lower in April 2007 versus April 2006, compared to 6 percent last month. Inventory levels dropped 1 percent from March. These levels seem to indicate that, at least at the manufacturer/ distributor level, inventories remain in reasonably good shape. We continue to believe that most companies learned their lessons during the last major slump when inventories were built and had to be discounted to move them back to reasonable levels. Factory Employees and Payroll: Factory payrolls were 8 percent lower than April 2006 compared to an 11 percent decline in March comparing to March 2006. The number of factory employees were 15 percent lower than April 2006 levels. The 15 percent decline was the same as the decline reported in March. National Consumer Confidence: The Conference Board Consumer Confidence Index, which had improved in May, fell to 103.9 from 108.5 in May. The Present Situation Index decreased to 127.9 from 136.1 in May. The Expectations Index fell to 87.9 from 90.1. Says Lynn Franco, Director of The Conference Board Consumer Research Center: “A perceived softening in present-day business and employment conditions are the major reasons behind this month’s pull-back in confidence. In fact, the Present Situation Index now stands at levels not seen since the final quarter of last year. Looking ahead, consumers remain rather subdued about short-term economic prospects. All in all, the glass remains half empty and half full.” Gross Domestic Product: According to the Bureau of Economic Analysis, 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 0.7 percent in the first quarter of 2007. This was the final estimate and compared to a 2.5 percent increase in the fourth quarter of 2006. The increase in the quarter reflected positive contributions from personal consumption expenditures and state and local government spending, offset partially by negative contributions from private inventory investments, residential fixed investment, federal government spending and an increase in imports. Housing: According to the National Association of Realtors (NAR), total existing home sales, including single family, townhomes, condos and co-ops fell only 0.3 percent to a seasonally adjusted annual rate of 5.99 million units in May from 6.01 million in April. Sales were 10.3 percent below the 6.68 million-unit level in May 2006. Single family home sales slipped 0.8 percent to a seasonally adjusted annual rate of 5.20 million. These levels were 10.8 percent lower than the pace a year ago. The median existing single family home price was $223,000 in May—2.4 percent lower than May 2006. Total housing inventory rose 5.0 percent at the end of May to 4.43 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.4-month supply in April. Lawrence Yun, NAR senior economist, said the market softness is understand-able. “I think psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,” he said. “Household formation has slowed dramatically since late 2006, implying that many people are doubling-up—there’re adding roommates or moving in with parents.” According to NAR, the market is underperforming when you consider positive fundamentals such as the strength in job creation, economic growth, favorable mortgage interest rates and flat home prices. It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market. Existing home sales were reported 3.5 percent lower than last year in the Northeast, 6.6 percent lower in the Midwest, 16.3 percent lower in the West and 11.9 percent lower in the Southeast. Sales of new one-family houses in May 2007 were at a seasonally adjusted annual rate of 915,000 according to the U.S. Census Bureau. This was 1.6 percent below the April rate and 15.8 percent below the May 2006 estimate. Interestingly enough, new homes sales were up 19.1 percent over last year in the Northeast, but down significantly in all other regions. The median price of new home sales in May was $236,100. The report indicated that there was a supply of 7.1 months at the current sales rate. Privately-owned housing starts fell 2.1 percent from April according to the U.S. Census Bureau. This was 21.7 percent below the revised May 2006 estimate. Single-family starts were 3.4 percent below April 2007. Consumer Prices and Retail Sales: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in May before seasonal adjustment and 0.7 percent after seasonal adjustment according to the Bureau of Labor Statistics. The May level was 2.7 percent higher than in May 2006. The index for energy, increased for the third consecutive month—up 5.4 percent in May. The index for petroleum-based energy rose 9.8 percent. The food index rose 0.3 percent in May. The index for all items less food and energy advanced 0.1 percent in May following a 0.2 percent increase April. According to the U.S. Census Bureau, the advance estimates for U.S. retail and food services for May indicated an increase of 1.4 percent over April and 5.0 percent over May 2006. Total sales for the three months ended May were up 4.2 percent over the same period a year ago. Retail trade sales were up 1.5 percent over April and were 4.9 percent higher than a year ago. Clothing and clothing accessories were up 7.8 percent from May 2006. Sales at furniture and home furnishings stores were up, on a seasonally adjusted basis, 0.3 percent over April and 3.1 percent over May 2006. Year-to-date, sales at these stores were up 3.8 percent. Employment: Nonfarm payroll employment increased 157,000 in May and the unemployment rate remained unchanged at 4.5 percent, according to the Bureau of Labor Statistics. Healthcare and food services added jobs, while employment declined in manufacturing. Average hourly earnings rose 6 cents, or 0.3 percent, over April rates. The number of unemployed persons were unchanged at 6.8 million. The unemployment rate has ranged from 4.4 to 4.6 percent since September 2006. Orders and Shipments: New orders for manufactured durable goods in April, up five of the last six months, were up 0.8 percent in May according to U.S. Census Bureau. This followed a 5.1 percent increase in March. Shipments increased 1.9 percent following a 1.3 percent increase in March. Computers and electronic products had the largest increase in shipments. Fabricated metal products had the largest increase in orders. According to this data, shipments of furniture and related products were off 6.7 percent comparing April to April 2006 and were off 6.1 percent year-to-date. New orders were down 5.3 percent year-to-date. Summary: While new orders were up nicely in April, as we mentioned before, we think much of the increase was related to the timing of the High Point Market. Most of the industry people we talk to are not seeing much improvement in current business. There are pockets of decent business, but we do not hear much good out of retailers in general. We did hear that Memorial Day sales were generally good, but discounting appeared to be a big factor in those reports. With housing sales remaining weak, we are concerned that there may not be much forward movement for some time. Our crystal ball continues to be fuzzy, as each quarter that goes by, we keep thinking we are a year away from better times. But those four quarters continue to seem to be a rolling four quarters. Most of the people we talk with do not expect to see much improvement over the last part of the year. We lost a few more manufacturers and distributors in the last few months. There could be more to come. We understand that there may be factories in Asia that are hurting from too much capacity there, based on current business conditions. With all that said, there continues to be some good business. As we have said over and over again, furniture is still being sold and a good deal of it. The key is having the right products and customers both at retail and wholesale. Hopefully some of the products that were brought out at the High Point Market will begin to ship and create new opportunities for customers. 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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