Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

Monthly Results 

New Orders

In May 2009, new orders were 17 percent lower than orders in May 2008, according to our most recent survey of residential furniture manufacturers and distributors. New orders in May were 9 percent higher than April orders. In April, new orders were off 27 percent from April 2008. We noted that there was likely an effect of the April High Point Furniture Market being held in late April 2009 versus earlier in April 2008. We believed that some orders did not get booked until May in 2009. If we add April and May orders for both years, the decline was 22 percent, which is in line with the previous months.

Approximately 83 percent of the participants reported lower order rates for the month. This compares to 92 percent of the participants last month.

Year-to-date, new orders are down 21 percent, down slightly from the 22 percent reported last month. Approximately 93 percent of the participants have reported lower orders year-to-date versus last year, the same as we reported last month. 

Shipments and Backlogs 

Shipments in May were down 19 percent compared to May 2008. This compares to a 21 percent decline comparing April 2009 to April 2008. Approximately 83 percent of the participants reported lower shipment levels in May versus May a year ago. This compared to 90 percent of the participants last month. 
 
 Year-to-date, shipments remained 21 percent lower than the first 5 months of 2008. Last year, shipments for the first 5 months were 7 percent below the first 5 months of 2007.

Backlogs were down 24 percent compared to May 2008. Last month, backlogs were down 26 percent so there was a slight improvement in these levels. 

Receivables and Inventories

Receivable levels were 23 percent lower in May 2009 than May 2008. These levels fell 3 percent from April in spite of an increase in shipments of 1 percent over last month. While we are continuing to hear that ageings are sliding a bit and days sales in receivables are off a bit, it appears that receivable levels are not as bad as one might expect.

Inventory levels were 18 percent lower in May 2009 than in May 2008. Inventories fell 6 percent from April to May. The 18 percent decline compares to a 12 percent decline comparing April 2009 to April 2008. It appears that inventories are in pretty good shape overall, considering order and shipment levels. 

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees was about even with April levels and was 20 percent off from May 2008. This compared with a 21 percent decline reported last month. In May 2008, the number of employees was down 9 percent compared to May 2007.

Factory and warehouse payrolls were down 22 percent for the month, in line with the 22 percent decline reported for April. Year-to-date, these payrolls remained 23 percent below last year. In May 2008, the payrolls were 10 percent below the same period in 2007. 

National 

Consumer Confidence

After a decline in June, The Conference Board Consumer Confidence Index™, declined further in July. The Index fell to 46.6 from 49.3 last month. The Present Situation Index decreased to 23.4 from 25.0 last month. The Expectations Index fell to 62.0 from 65.5 in June.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months. The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply. The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further. However, more consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead.”

Consumers continued to rate current conditions unfavorably in July. Those saying business conditions are “bad” increased to 46.3 percent from 45.3 percent, however, those saying conditions are “good” increased to 9.1 percent from 8.1 percent. Consumers’ assessment of the labor market deteriorated further. Those claiming jobs are “hard to get” increased to 48.1 percent from 44.8 percent, while those claiming jobs are “plentiful” decreased to 3.6 percent from 4.5 percent.

Overall, consumers remain quite pessimistic about the short-term outlook. The percent of consumers anticipating an improvement in business conditions over the next six months decreased to 18.0 percent from 20.9 percent, however, those expecting conditions to worsen decreased to 18.9 percent from 20.4 percent.

Similar results came from the Reuters/University of Michigan Surveys of Consumers. According to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers, “While consumers believe the economic free-fall is now over, consumers see little reason to believe that the economic stimulus package will improve their finances anytime soon. It is difficult to determine whether the recent loss in confidence simply reflects the impatience of consumers or the sprouting of changed assessments of the effectiveness of the stimulus policies,” noted Curtin. In either event, “economic apprehensions can be expected to increase along with rising unemployment and stagnant incomes during the months ahead,” according to Curtin. Although consumer spending will improve during the balance of 2009, total personal consumption expenditures will post a lackluster increase of 1.5 percent during 2010, according to the report.

The Index of Consumer Sentiment was 66.0 in the July 2009 survey, between the 70.8 in June and the 61.2 recorded in last year’s July survey. The July 2009 reading was the fourth positive year-to-year change since mid 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 63.2 in July, down from 69.2 in June but well above last July’s 53.5. The Current Economic Index also fell in July to 70.5 from 73.2 in June but remained below last July’s 73.1.

According to the report, recent income gains were reported by the fewest consumers in the more than sixty-year history of the survey. Moreover, a worsening financial situation was reported by the majority of consumers, and these financial reversals were as common among upper as lower income households. Financial prospects for the year ahead were equally gloomy across all income groups. Expected income gains were barely positive, with the expected annual income increase barely above zero―just two-tenths of a percentage point. 

Gross Domestic Product (GDP)

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 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.

 The decrease in real GDP in the second quarter primarily reflected negative contributions from nonresidential fixed investment, personal consumption expenditures (PCE), residential fixed investment, private inventory investment, and exports that were partly offset by positive contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

The much smaller decrease in real GDP in the second quarter than in the first primarily reflected much smaller decreases in nonresidential fixed investment, in exports, and in private inventory investment, upturns in federal government spending and in state and local government spending, and a smaller decrease in residential fixed investment that were partly offset by a much smaller decrease in imports and a downturn in PCE.

Motor vehicle output added 0.20 percentage point to the second-quarter change in real GDP after subtracting 1.69 percentage points from the first-quarter change. Final sales of computers subtracted 0.04 percentage point from the second-quarter change in real GDP after adding 0.06 percentage point to the first-quarter change. 

Leading Economic Indicators

The Conference Board Leading Economic Index™ (LEI) for the U.S. increased 0.7 percent in June, following a 1.3 percent gain in May, and a 1.0 percent rise in April. Over the past six months, the U.S. LEI has improved 4.1 percent (annual rate).

Ken Goldstein, Economist at The Conference Board said:  “The recession has been losing steam since the spring, although very large job losses continue. Nevertheless, confidence is slowly rebuilding. Financial markets are less volatile. Even the housing market is stabilizing. If these trends continue, expect a slow recovery this autumn.”

The Conference Board Coincident Economic Index™ (CEI) for the U.S. declined 0.2 percent in June, following a 0.3 percent decline in May, and a 0.3 percent decline in April. The Conference Board Lagging Economic Index™ (LAG) declined 0.7 percent in June, following a 0.4 percent decline in May, and a 0.9 percent decline in April. 

Housing 

Existing-Home Sales

According to the National Association of Realtors® (NAR), existing-home sales rose for the third consecutive month with inventory easing and home prices declining less sharply in June.

Single-family home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.32 million in June from a level of 4.22 million in May, and are 0.2 percent higher than the 4.31 million-unit pace a year ago. The median existing single-family home price was $181,600 in June, which was 15.0 percent below June 2008.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 3.6 percent to a seasonally adjusted annual rate of 4.89 million units in June from a downwardly revised pace of 4.72 million in May, but are 0.2 percent lower than the 4.90 million-unit level in June 2008.

Lawrence Yun, NAR chief economist, was hopeful about the gain. “The increase in existing-home sales occurred in all major regions of the country,” he said. “We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions. Despite the rise in closed transactions, many Realtors® are reporting lost sales as a result of new appraisal standards that went into effect May 1 of this year.”

A June survey of NAR members shows 37 percent experienced at least one lost sale as a result of the new Home Valuation Code of Conduct, with seven out of 10 reporting an increased use of out-of-area appraisers. Seventy percent of NAR appraiser members said consumers were paying higher fees, while 85 percent report a perceived reduction in appraisal quality.

Regionally, existing-home sales in the Northeast rose 2.5 percent in June, but are 4.7 percent below a year ago. The median price in the Northeast was $249,400, down 5.9 percent from June 2008.

 Existing-home sales in the Midwest increased 0.9 percent in June but are 1.8 percent lower than June 2008. The median price in the Midwest was $157,000, which is down 9.1 percent below a year ago.

In the South, existing-home sales rose 4.0 percent in June but are 3.7 percent below a year ago. The median price in the South was $163,200, down 11.9 percent from June 2008.

Existing-home sales in the West improved by 6.4 percent in June, and are 11.5 higher than June 2008. The median price in the West was $214,800, which is 24.9 percent below a year ago.

Total housing inventory at the end of June fell 0.7 percent to 3.82 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, down from a 9.8-month supply in May. 

New Residential Sales

Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 11.0 percent above the revised May rate of 346,000, but was 21.3 percent below the June 2008 estimate of 488,000.

The median sales price of new houses sold in June 2009 was $206,200; the average sales price was $276,900. The seasonally adjusted estimate of new houses for sale at the end of June was 281,000. This represents a supply of 8.8 months at the current sales rate.

Sales of new homes in June compared to June 2008 were actually up 5.8 percent in the Midwest but were down 34.4 percent in the South. 

Housing Starts

According to the U.S. Census Bureau, single-family housing starts in June were at a rate of 470,000 or 14.4 percent above the revised May level. For all privately-owned starts, the June rate was 3.6 percent above the revised May estimate but 46 percent below the June 2008 rate. 

Retail Sales

The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $342.1 billion, an increase of 0.6 percent from the previous month, but 9.0 percent below June 2008. Total sales for the April through June 2009 period were down 9.6 percent from the same period a year ago.

Retail trade sales were up 0.8 percent from May 2009, but 10.0 percent below last year. Gasoline stations sales were down 31.6 percent from June 2008 and motor vehicle and parts dealers sales were down 14.1 percent from last year.

Sales at furniture and home furnishings stores were down only 0.2 percent from May to June on an adjusted basis but were down 12.6 percent from June 2008. Year-to-date, sales at these stores were reported to be down 14 percent. The only categories that were down more than these stores were motor vehicle and parts dealers (down 20.8 percent) and gasoline stations (down 33.6 percent) – due to a great degree in price reductions. 

Consumer Prices

According to the Bureau of Labor Statistics of the U.S. Department of Labor, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in June before seasonal adjustment. Over the last 12 months the index has fallen 1.4 percent, as a 25.5 percent decline in the energy index has more than offset increases of 2.1 percent in the food index and 1.7 percent in the index for all items less food and energy.

On a seasonally adjusted basis, the CPI-U increased 0.7 percent in June after rising 0.1 percent in May. The acceleration was largely caused by the gasoline index, which rose 17.3 percent in June and accounted for over 80 percent of the increase in the all items index. The index for energy rose 7.4 percent in June, with a decline in the electricity index partly offsetting the sharp increase in gasoline. The food index, which had fallen each of the last four months, was unchanged in June.

The index for all items less food and energy rose 0.2 percent in June following a 0.1 percent increase in May. Most components of all items less food and energy posted increases; the indexes for shelter and medical care rose slightly, while the indexes for new vehicles, used cars and trucks, recreation, and apparel all increased at least 0.5 percent. The index for airline fares did decline in June, falling 0.6 percent. 

Employment

Nonfarm payroll employment continued to decline in June, down 467,000, according to the Bureau of Labor Statistics. The unemployment rate remained at 9.5 percent. Job losses were widespread across industry sectors with large declines in manufacturing, professional and business services, and construction.

The number of unemployed persons remained at the 14.7 million level. The number of unemployed persons has increased by 7.2 million since the start of the recession in December of 2007. The unemployment rate has risen by 4.6 percentage points. 

Durable Goods Orders and Factory Shipments

New orders for manufactured goods in May, up three of the last four months, increased $4.1 billion or 1.2 percent, according to the U.S. Census Bureau. This followed a 0.5 percent April increase. Excluding transportation, new orders increased 0.8 percent.

Shipments, down ten consecutive months, decreased $3.1 billion or 0.9 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 0.5 percent April decrease.

According to this report, orders for furniture and related products were down 19 percent comparing May 2009 to May 2008. Year-to-date, orders were reported to be down 19.7 percent.

Shipments in this category were down 22 percent with year-to-date shipments reported off 20.5 percent. 

Summary

As we expected, the results for May re-mained off significant double digits even with some comparison issues related to timing of the Market. There appeared to be some good news from some folks in early June, but there has been no consistency in any forward momentum.

It does seem to feel like we are maybe beginning to see the bottom, yet we are not totally ready to call that yet. Consumer confidence sliding two months in a row is not helping matters especially as it relates to the industry.

It would seem that maybe Washington could take the hint that the American people do not have much confidence in all of this chaos in D.C. We know that there are politics involved, but it seems to us that our elected officials are trying to change too much too fast and the public doesn’t have confidence that they know what they are doing.

The good news is that the stock market is doing better. That is certainly a good thing. It seems that second quarter reports were better than expected and that is also good. Hopefully, Congress and the White House will slow down a bit and let the public catch up with the fact that all the news is not awful and regain some confidence.

As we have noted before, starting with June results, we will begin comparisons to last year when we first started reporting double digit declines. Once we start those comparisons over the next few months, we should be able to tell if we really have reached the bottom or at least feel that we are near it.

On a lighter note, we did hear from one manufacturer/distributor (second hand) who was talking about how bad his business was. He noted that even his customers, who do not intend to pay, were not even placing orders.

As we finish off the summer and head into a better selling season, let’s hope the economy, in general, continues to improve. The GDP numbers were encouraging. If we can quit talking the R word, consumers’ attitudes will improve. Then, after getting comfortable that they have confidence that the worst is over, they will hit the furniture stores again.
 

  (R) Revised 
 

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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