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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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Monthly Results New Orders: As we suspected would happen last month, new orders fell in May by 13 percent compared to May 2006 order levels, according to our recent survey of residential furniture manufacturers and distributors. In April 2007, new orders were up 12 percent over the previous April. We had suspected that the increase was primarily attributable to the timing of the High Point Market since Market was in April in 2007 and ended in May 2006. For the two months combined, new orders were off about 2 percent. The overall decline for the two months brought the year-to-date totals to a decrease of 5 percent, up slightly from the 4 percent levels in March and February. Year-to-date, some 65 percent of the participants reported decreased order levels. This was up from 60 percent at the end of March. Shipments and Backlogs Shipments in May 2007 were down 7 percent versus May 2006 but were up 2 percent over April. Shipments in May are typically higher than April. Year-to-date, shipments remained 7 percent below last year. Shipments have now been off every month since July of 2006. Similar to the last two months, 73 percent of the participants reported lower levels of shipments on a year-to-date basis. With shipments exceeding new orders, backlogs fell 6 percent from April levels and were 5 percent lower than May 2006 levels, in line with the decrease in orders. Receivables and Inventories Receivable levels fell 1 percent from April despite the increase in shipments. Compared to last May though, receivables were down 5 percent compared to the 7 percent decline in shipments for the month and year to date. If business remains weak at retail most will need to watch allowing some of the customers drag out payments. Inventories fell 1 percent from April and were 11 percent lower than May 2006 levels. This compared to a 9 percent decrease reported in April. Based on order levels, it appears that inventories should be in pretty good shape. Similar to shipments, some 70 percent of the participants reported lower inventory levels. Factory Employees and Payroll Factory payrolls were down 6 percent in May compared to May a year ago. In April, these payrolls were down 8 percent. Year-to-date, factory payrolls remained 8 percent below the year-to-date payrolls last year. The number of factory employees were even with April and were down 14 percent from last May. This compared to a 15 percent decline reported last month. National Consumer Confidence: The Conference Board Consumer Confidence Index, which had slipped in June, rebounded in July. The Index now stands at 112.6 (1985=100), up from 105.3 in June. The Present Situation Index increased to 139.2 from 129.9 in June. The Expectations Index rose to 94.8 from 88.8. Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The rebound in Consumer Confidence has catapulted the Index to its highest reading in nearly six years (August 2001, 114.0). An improvement in business conditions and the job market has lifted consumers’ spirits in July. The more upbeat about short-term economic prospects, mainly the result of a decline in the number of pessimists, not an increase in the number of optimists. This rebound in confidence suggests economic activity may gather a little momentum in the coming months.” Gross Domestic Product: According to the Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 3.4 percent (advance estimate) in the second quarter of 2007. The real GDP increased only 0.6 percent in the first quarter. The increase in the quarter primarily was caused by positive contributions from personal consumption expenditures for services, exports, non residential structures and federal, state and local government spending. These were partially offset by negative contributions from residential fixed investments. Imports, a subtraction from GDP decreased in the quarter, helping the acceleration of the GDP. The results of the annual revisions in the GDP were also released in July. According to the revised reports, the growth in the GDP was 3.6 percent in 2004, down from 3.9 percent originally; 3.1 percent from 3.2 percent in 2005 and 2.9 percent from 3.3 percent in 2006. Housing: Total existing home sales, including single family, townhomes, condos and co-ops, declined 3.8 percent in June to a seasonally adjusted rate of 5.75 million units from May’s 5.98 million. Sales were 11.4 percent lower than sales in June of 2006, up from a 10.3 percent decline in May compared to May 2006. Single-family home sales fell 3.5 percent in June from May levels and were 12.1 percent below June 2006 levels. The median existing single-family home price was $230,300 in June, up 0.1 percent over last year. Regionally existing home sales fell 1.7 percent in the South, 2.8 percent in the Midwest, 6.8 percent in the West and 7.3 percent in the Northeast. The total housing inventory fell 4.2 percent in June to an 8.8 months supply. Lawrence Yun, NAR senior economist, said some consumers are uncertain. “Home buyers have been getting mixed signals about the housing market, which is causing some of them to hesitate,” he said. “Mortgage interest rates have risen recently, and tightening lending standards are continuing to hamper sales, but fewer risky loans will put the market on a healthier path. Although general buying conditions remain favorable for long-term home buyers, it appears some buyers are looking for more signs of stability before they have enough confidence to make an offer.” Sales of new one-family homes in June fell 6.6 percent from May and were 22.3 percent below the June 2006 levels. This decrease from last year compares to a 15.8 percent decline last month. The median price of new homes was $237,900, up from $236,100 last month. The report indicated that there is now a 7.8 months supply of new homes for sale, up from 7.1 months last month. Single-family housing starts in June were at a rate of 1,151,000 or a 0.2 percent decline from the May results. Consumer Prices: According to the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in June on both a non seasonally and seasonally adjusted basis. The June 2007 level was 2.7 percent higher than a year ago in June. The index for energy, which had increased sharply in the last three months, declined 0.5 percent, with petroleum-based energy dropping 0.9 percent. The index for all items less food and energy advanced 0.2 percent in June following a 0.1 percent increase in May. Consumer prices increased at a seasonally adjusted annual rate (SAAR) of 5.2 percent in the second quarter after advancing at a 4.7 percent rate in the first three months of 2007. This brings the year-to-date annual rate to 5.0 percent and compares with an increase of 2.5 percent in all of 2006. The index for energy, which rose 2.9 percent in all of 2006, advanced at a 27.8 percent SAAR in the first half of 2007 and accounted for about 48 percent of the advance in the overall CPI-U during that period. Petroleum-based energy costs increased at a 48.3 percent annual rate and charges for energy services rose at a 5.5 percent annual rate. The food index rose at a 6.2 percent SAAR in the first half of 2007 and contributed about 17 percent to the overall CPI-U increase in the first six months. Grocery store food prices increased at a 8.0 percent annual rate in the first half of 2007, reflecting acceleration over the last year in each of the six major groups. These increases ranged from annual rates of 14.8 percent in the index for dairy products to 5.5 percent in the index for other food at home. The CPI-U excluding food and energy advanced at a 2.3 percent SAAR in the second quarter, the same rate as in the first three months of 2007. The advance at a 2.3 percent SAAR for the first half of 2007 compares with a 2.6 percent rise in all of 2006. The deceleration largely reflects a smaller increase in the index for shelter and a downturn in the index for apparel. Retail Sales: The U.S. Census Bureau announced its advance estimates for retail sales. According to the report, U.S. retail and food service sales for June, adjusted for seasonal variation and holiday trading day differences, fell 0.9 percent from May but were 3.8 percent above June a year ago. Total sales for the quarter were 3.9 percent ahead of the second quarter last year. Retail trade sales were down 1 percent from May but were 3.5 percent ahead of last June. Sales at furniture and home furnishings stores were down 3 percent from May and down 2 percent from June a year ago. Year-to-date, sales at these stores were reported up 3 percent over the first-half of last year. Employment: Nonfarm payroll employment increased 132,000 in June according to the Bureau of Labor Statistics. The unemployment rate remained unchanged at 4.5 percent. Employment rose in several service providing industries, while manufacturing continued to decline. Durable Goods Orders and Shipments: New orders for manufactured durable goods in June increased by 1.4 percent according to the U.S. Census Bureau. This was the fourth increase in the last five months. Excluding transportation, new orders decreased 0.5 percent. Transportation equipment, up after two consecutive decreases, had the largest increase, holstered by nondefense aircraft and parts. Shipments of manufactured durable goods in June declined 1.1 percent after three consecutive monthly increases. This followed a 0.6 percent increase in May. Consumer Credit: According to the Federal Reserve, total consumer debt increased at an annualized rate of 6.4 percent in May with revolving debt up 9.8 percent. Total consumer debt was estimated at 2.4406 trillion dollars with revolving credit in that total of $894.6 billion. Summary: As we noted last month, the surge in orders comparing April to April 2006 was a timing issue. The combined April and May results pretty much reflected what we have been hearing. Occasionally, there have been some spurts of orders—including just after the July 4th holidays, but there does not seem to be much sustained growth. The housing market continues to be in the doldrums with not much good news expected any time soon. With so much inventory out there, new home starts are likely to remain low for some time. As we have indicated before, we are now comparing to rather weak results from last year so the hope is that maybe we have bottomed out. But based on conversations at retail, the traffic is not necessarily there. Based on this, it may be a while before we see any sustained growth. Consumer debt growth is a continuing concern but the recent report on consumer confidence is encouraging. We continue to believe that is the key factor. With interest and inflation (except for energy related items) in reasonably good shape, we just need some pick up in housing and sustained confidence. 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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