Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

New Orders

According to our recent survey of residential furniture manufacturers and distributors, we finally saw a bit of easing in the erosion of new orders. New orders for March 2009 were 17 percent lower than March 2008. While nothing to get too excited about, at least the decline fell below the 20 plus percentages we have been reporting.

Some 85 percent of the participants reported lower order rates compared to 89 percent in February and similar percentages in the last several months.

Year-to-date, new orders were 21 percent lower than the first quarter of 2008. This percentage was down from 22 percent last month (remember the fourth quarter of 2008 was down 26 percent). Orders in the first quarter of 2008 were 8 percent lower than the first quarter of 2007. 

Shipments and Backlogs 

Similar to orders, shipments were off 17 percent in March versus March 2008. One reason March “felt” better was that March shipments were 10 percent higher than February, but that is somewhat affected by more days of shipping.

The percentage of participants report-ing lower shipments in March was down to 88 percent versus 93 percent in February.

Backlogs fell 1 percent in March from February as shipments slightly exceeded orders. Year-to-date, backlogs are 21 percent lower than March of 2008. March 2008 backlogs were 10 percent lower than 
 
March 2007. Backlogs are the lowest we have seen in recent memory.

Receivables and Inventories

Receivables were 20 percent lower than March 2008 levels, very much in line with the decline both in March and year-to-date shipments. Receivable levels were 4 percent lower than February in spite of the increase in shipments over February. 

Although we continue to hear that some retailers are stretching out payments, we have also noted that many manufacturers and distributors are holding shipments until credit lines are reasonable.

Inventory levels were off 5 percent from February and were 11 percent lower than March 2008. It appears that many importers have been able to reduce the flow of goods from Asia and others. Most everyone we have talked with are really focused on turning inventory to cash.

In addition, and we hope this is true, we believe that much of the blow out inventory, has been “blown out.” This is a good thing. 

Factory and Warehouse Employees and Payrolls

March 2009 factory employees were 20 percent lower than March 2008 and off 2 percent from February 2009.

Factory payrolls were off 24 percent from March 2008 and down 24 percent for the first quarter. The increase of 9 percent from February is likely the result of more working days in March versus February. 

National 

Consumer Confidence

The Conference Board Consumer Confidence Index™, which had improved considerably in April, posted another large gain in May. The Index now stands at 54.9 (1985=100), up from 40.8 in April. The Present Situation Index increased to 28.9 from 25.5 last month. The Expectations Index rose to 72.3 from 51.0 in April.

Lynn Franco, Director of The Conference Board Consumer Research Center said, “After two months of significant improvements, the Consumer Confidence Index is now at its highest level in eight months (September 2008, 61.4). Continued gains in the Present Situation Index indicate that current conditions have moderately improved, and growth in the second quarter is likely to be less negative than in the first. Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months. While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us.”

Consumers’ short-term outlook improved significantly in May. Those expecting business conditions will improve over the next six months increased to 23.1 percent from 15.7 percent, while those anticipating condi-tions will worsen declined to 17.8 percent from 24.4 percent in April.

The employment outlook was also less pessimistic. The percentage of consumers expecting more jobs in the months ahead increased to 20.0 percent from 14.2 percent, while those anticipating fewer jobs decreased to 25.2 percent from 32.5 percent. The proportion of consumers anticipating an increase in their incomes edged up to 10.2 percent from 8.3 percent. 

Gross Domestic Product (GDP)

According to the Bureau of Economic Analysis preliminary estimates, real gross domestic product – the output of goods and services produced by labor and property located in the United States – decreased at an annual rate of 5.7 percent in the first quarter of 2009, (that is, from the fourth quarter to the first quarter).

The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, equipment and software, private inventory investment, nonresidential structures, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, decreased.

The smaller decrease in real GDP in the first quarter than in the fourth reflected a larger decrease in imports, an upturn in PCE for durable goods, and a smaller decrease in PCE for nondurable goods that were partly offset by larger decreases in private inventory investment and in nonresidential structures and a downturn in federal government spending.

Motor vehicle output subtracted 1.36 percentage points from the first-quarter change in real GDP after subtracting 2.01 percentage points from the fourth-quarter change. Final sales of computers added 0.06 percentage point to the first-quarter change in real GDP after subtracting 0.02 percentage point from the fourth-quarter change. 

Leading Economic Indicators

The Conference Board Leading Economic Index™ (LEI) for the U.S. increased 1.0 percent in April, following a 0.2 percent decline in March and a 0.5 percent decline in February.

Ken Goldstein, Economist at The Conference Board said:  “The leading indicators suggest that while the recession will continue in the near term, the declines will be less intense. The question is how long before declines in activity  give way to small increases. If the indicators continue on the current track, that point might be reached in the second half of the year.”

The Conference Board Coincident Economic Index™ (CEI) for the U.S. declined 0.2 percent in April, following a 0.6 percent decline in March, and a 0.6 percent decline in February. The Conference Board Lagging Economic Index™ declined 0.5 percent in April, following a 0.5 percent decline in March, and a 0.6 percent decline in February. 

Housing 

Existing-Home Sales

Existing-home sales rose in April with strong buyer activity in lower price ranges, according to the National Association of Realtors® (NAR).

Single-family home sales rose 2.5 percent to a seasonally adjusted annual rate of 4.18 million in April from a level of 4.08 million in March, but are 2.8 percent below the 4.30 million-unit pace in March 2008. The median existing single-family home price was $169,800 in April, which is 14.9 percent below a year ago.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 2.9 percent, but were 3.5 percent below the 4.85 million-unit level in April 2008.

Lawrence Yun, NAR chief economist, said first-time buyers continue to influence the market but there also is a seasonal rise of repeat buyers. “Most of the sales are taking place in lower price ranges and activity is beginning to pick up in the midprice ranges, but high-end home sales remain sluggish,” he said. “The Federal Reserve needs to help restore liquidity for the jumbo mortgage market by buying these loans under the TALF program.”

“Because foreclosed properties will likely be released into the market over the rest of year, it is critical that distressed homes be quickly cleared from the market,” Yun said. “Fortunately, home buyers are being attracted to deeply discounted prices and are bidding up many foreclosed listings, particularly in California, Nevada, and Florida ― this will set the stage for healthy market conditions going forward.”

An NAR practitioner survey in April showed first-time buyers declined to 40 percent of transactions, implying more repeat buyers are entering the traditional spring home-buying season. It also showed the number of buyers looking at homes has increased 14 percentage points from a year ago. “This is consistent with our forecast for home sales in the latter part of the year to be 10 to 20 percent higher than the second half of 2008,” Yun said.

Total housing inventory at the end of April rose 8.8 percent to 3.97 million existing homes available for sale, which represents a 10.2-month supply at the current sales pace, compared with a 9.6-month supply in March. “The gain in inventory is largely seasonal from sellers entering the spring market. Even with the rise, inventory over the past few months has remained consistently lower in comparison with a year earlier,” Yun noted.

Regionally, existing-home sales in the Northeast jumped 11.6 percent, but are 10.5 percent below April 2008. The median price in the Northeast was $237,400, which is 9.6 percent lower than a year ago.

 Existing-home sales in the Midwest slipped 2.0 percent in April and are 9.9 percent lower than a year ago. The median price in the Midwest was $138,800, down 11.7 percent from April 2008.

In the South, existing-home sales increased 1.8 percent in April but are 8.9 percent lower than April 2008. The median price in the South was $148,000, which is 12.8 percent below a year ago.

Existing-home sales in the West rose 3.5 percent in April and are 19.4 percent higher than a year ago. The median price in the West was $222,600, down 21.8 percent from April 2008. 

New Residential Sales

Sales of new one-family houses in April 2009 were at a seasonally adjusted annual rate of 352,000, according to estimates released by the U.S. Census Bureau. This is 0.3 percent above the revised March rate of 351,000, but is 34.0 percent below the April 2008 estimate of 533,000.

The median sales price of new houses sold in April 2009 was $209,700; the average sales price was $254,000. The seasonally adjusted estimate of new houses for sale at the end of April was 297,000. This represents a supply of 10.1 months at the current sales rate. 

Housing Starts

According to the U.S. Census Bureau, privately-owned housing starts in April were at a seasonally adjusted rate of 458,000. This was 12.8 percent below the revised March results and 54.2 percent below the April 2008 rate.

Single-family housing starts in April were 2.8 percent above the revised March figures. 

Retail Sales

According to the U.S. Census Bureau, advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $337.7 billion, a decrease of 0.4 percent from the previous month and 10.1 percent below April 2008. Total sales for the February through April 2009 period were down 9.2 percent from the same period a year ago.

Retail trade sales were down 0.4 percent from March 2009 and 11.4 percent below last year. Gasoline stations sales were down 36.4 percent from April 2008 and motor vehicle and parts dealers sales were down 20.7 percent from last year. Obviously, most of the decline at gas stations was due to lower prices at the pump.

Sales at furniture and home furnishings stores were, on an adjusted basis, down 0.5 percent from March 2009 and were down 14.2 percent from April 2008. Year-to-date, sales at these stores were down 14.3 percent from the first four months of last year. 

Consumer Prices

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in April, before seasonal adjustment, according to the Bureau of Labor Statistics of the U.S. Department of Labor. This index has fallen 0.7 percent over the last 12 months, due primarily to a 25.2 percent drop in energy prices.

 On a seasonally adjusted basis, the CPI-U was unchanged in April after declining 0.1 percent in March. The energy index declined for the second straight month, falling 2.4 percent after declining 3.0 percent in March. The indexes for motor fuel, fuel oil, natural gas, and electricity all declined in April. The food index declined as well, falling 0.2 percent in April after a 0.1 percent decrease in March. Over the past year, the food index has risen 3.3 percent while the energy index has declined 25.2 percent. 

Employment

Nonfarm payroll employment continued to decline sharply in April (-539,000), and the unemployment rate rose from 8.5 to 8.9 percent, according to the Bureau of Labor Statistics. Since the recession began in December 2007, 5.7 million jobs have been lost. In April, job losses were large and widespread across nearly all major private-sector industries. Overall, private-sector employment fell by 611,000.

The number of unemployed persons increased by 563,000 to 13.7 million in April. Over the past 12 months, the number of unemployed persons has risen by 6.0 million, and the unemployment rate has grown by 3.9 percentage points. 

Durable Goods Orders and Factory Shipments

New orders for manufactured durable goods in April increased $3.0 billion or 1.9 percent to $161.5 billion, according to the U.S. Census Bureau. This was the second increase in the last three months and followed a 2.1 percent March decrease. Excluding transportation, new orders increased 0.8 percent. Excluding defense, new orders also increased 1.0 percent.

Shipments of manufactured durable goods in April, down nine consecutive months, decreased 0.2 percent. This was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 1.9 percent March decrease.

According to the Census Bureau, shipments of furniture and related products, shipments in March were down 18 percent from March of last year. Year-to-date, shipments in this category were off 19.6 percent from the first three months of 2008. The report also noted that orders were off 19 percent year-to-date. 

Consumer Credit

Consumer credit was down 5.2 percent in March according to the Federal Reserve statistical release after falling 3.8 percent in February. Revolving credit was down 6.8 percent after falling 12.1 percent in February.

Summary

The March results were pretty much in line with our expecta-tions. Based on many of the public company reports for the first quarter, we were pleased that our numbers were not worse than they were.

We mentioned earlier that we believe most of the “blow out” of inventories is about over. This should mean that, hopefully, retailers will begin buying more products at more normal prices. While there may still be some discounting, at least we should not have to give the 5o to 80 percent discounts we have heard about.

Most of what we heard from the results of the April Market, orders were decent from new products but everyday orders have remained sluggish. We also heard a wide variance of reports from Memorial Day sales, with some retailers reporting good results, yet others were disappointed.

We continue to hear that the economy should start to pick up somewhat or at least bottom out in the third quarter. We know that the furniture industry typically lags other products, so it may be the fourth quarter of 2009 or first quarter of 2010, before we see much improvement.

Housing in certain areas is showing some signs of improvement. With consumer debt also declining, we feel that once consumer confidence gets back to more normal levels (and this month’s improvement was a good start), we will have an opportunity to see some improvement in 2010. No one expects the economy to come back with a roar, but at least if companies can feel they have bottomed out, management can structure the company to deal current volume levels.

We wish there was more positive news, but we do believe that we are, if not at the bottom, at least we are nearing it. With no one expecting business to come back fast, we believe that companies need to make sure that they are not hanging on to people that are not necessarily at current levels. But we urge management to ensure that they are careful not to cut muscle that is critical to success.

  (R) Revised