Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

Monthly Results 

According to our latest survey of residential furniture manufacturers and distributors, new orders were 13 percent higher in February 2010 than February 2009. New orders in February 2009 were 22 percent lower than February 2008. This marked the fourth month in a row that orders were up over the previous year’s same month comparison. (October was flat, November up 10 percent, December up 12 percent and January up 4 percent.) Admittedly, all of these months were comparing to poor results in the previous year. But the good news is that we seem to have stopped the downward flow.

For the month, approximately 58 percent of the participants reported increases in orders. Year-to-date, orders are now up 9 percent over the first two months of last year. Some 68 percent of the participants have reported increases for the two month period, which is more indicative of overall results due to timing of orders month to month. The 68 percent compares to 59 percent last month. 

Shipments and Backlogs 

Shipments in February were 4 percent higher than February 2009. January shipments were 6 percent higher than January 2009, resulting in the year-to-date shipments up 5 percent over the same two months of last year. This was the third month in a row that shipments were up over the same period a year ago. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Approximately 60 percent of the participants reported increased shipments for the two month period, about the same as last month. We believe that the lag of shipment increases versus orders is a result of imported products taking longer to be delivered, as well as some impact of supplies, such as fabrics and frames, being imported as well. 

As a result of orders exceeding shipments, backlogs increased 12 percent over January. Backlogs are now up 34 percent over February of 2009, up from 26 percent last month. 

Receivables were down 3 percent from last February in spite of the increase in shipments. Receivables were even with January with shipments up 11 percent. Some of this may relate to timing, as we would expect receivable levels to begin to increase as shipments increase. Overall, receivables continue to be in good shape at this point.

Inventories in February were 19 percent lower than February 2009 versus a decrease of 21 percent last month compared to January 2009. February 2009 inventory levels were 6 percent lower than February 2008. As with the last few months, it appears that inventories are much more in line with current volume levels. 

The number of factory and warehouse employees fell 3 percent from January levels and were down 5 percent from February a year ago. January 2010 employee levels were 6 percent below January 2009. In February 2009, the number of employees was 19 percent lower than February 2008.

Factory and warehouse payrolls were even with February 2009, but were 7 percent higher than January 2010.  Year-to-date, payrolls were down 3 percent even with shipments and orders up.  Some of this is likely a reflection of adjustments that were made later in 2009 as companies were adjusting to lower business conditions. 

National 

According to the Conference Board, the Consumer Confidence Index®, which had rebounded in March, increased further in April.  The Index now stands at 57.9 (1985=100), up from 52.3 in March.  The Present Situation Index increased to 28.6 from 25.2.  The Expectations Index improved to 77.4 from 70.4.

Lynn Franco, Director of The Conference Board Consumer Research Center said: "Consumer confidence, which had rebounded in March, gained further ground in April.  The Index is now at its highest reading in about a year and a half (Sept. 2008, 61.4).  Consumers’ concerns about current business and labor market conditions eased again.  And, their outlook regarding business conditions and the labor market was also more positive than last month.  Looking ahead, continued job growth will be key in sustaining positive momentum."

Consumers’ outlook was also brighter in April.  The percentage of consumers expecting business conditions will improve over the next six months increased to 19.8 percent from 18.0 percent, while those expecting conditions will worsen declined to 12.6 percent from 13.6 percent.

Consumers were also more optimistic about the job outlook.  The percentage of consumers anticipating more jobs in the months ahead increased to 18.0 percent from 14.1 percent, while those anticipating fewer jobs declined to 20.0 percent from 21.4 percent.  The proportion of consumers anticipating an increase in their incomes declined to 10.3 from 10.8 percent. 

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 1.4 percent in March, following a 0.4 percent gain in February, and a 0.6 percent rise in January.

Ataman Ozyildirim, economist at The Conference Board said: "The U.S. LEI has risen steadily for a year, and its six-month growth rate has remained fairly stable in recent months – led by improvements in financial and labor market indicators. Payroll employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction."

Ken Goldstein, economist at The Conference Board added: "The indicators point to a slow recovery that should continue over the next few months. The leading, coincident and lagging series are rising. Strength of demand remains the big question going forward. Improvement in employment and income will be the key factors in whether consumers push the recovery on a stronger path."

The Conference Board Coincident Economic Index® (CEI) for the U.S. rose 0.1 percent in March, following a 0.1 percent increase in February, and no change in January. The Conference Board Lagging Economic Index® (LAG) increased 0.2 percent in March, following a 0.1 percent increase in February, and a 0.3 percent decline in January. 

Housing 

According to the National Association of Realtors® (NAR) existing-home sales, which are completed transactions that include single-family townhomes, condominiums and co-ops, rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million in February, and are 16.1 percent above the 4.61 million-unit level in March 2009.

Single-family home sales rose 7.3 percent to a seasonally adjusted annual rate of 4.68 million in March from a level of 4.36 million in February, and are 13.3 percent above the 4.13 million level a year ago. The median existing single-family home price was $170,700 in March, up 0.6 percent from March 2009.

Single-family median prices rose in 14 out of 20 metropolitan statistical areas reported in March in comparison with a year earlier. Five metro areas experienced double-digit increases, including San Diego, St. Louis and Boston.

Lawrence Yun, NAR chief economist, said "it is encouraging to see a broad home sales recovery in nearly every part of the country, with two important underlying trends. Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running. The home buyer tax credit has been resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure."

Total housing inventory at the end of March rose 1.5 percent to 3.58 million existing homes available for sale, which represents an 8.0-month supply at the current sales pace, down from an 8.5-month supply in February. Raw unsold inventory is 1.8 percent below a year ago, and is 21.7 percent below the record of 4.58 million in July 2008.

"Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably," Yun said. "In fact, foreclosures are selling quickly, especially in the lower price ranges that are attractive to first-time home buyers."

A parallel NAR practitioner survey shows first-time buyers purchased 44 percent of homes in March, up from 42 percent in February. Investors accounted for 19 percent of transactions in March, unchanged from February; the remaining sales were to repeat buyers. All-cash sales remain elevated at 27 percent in March, the same as in February.

Regionally, existing-home sales in the Northeast increased 6.0 percent in March and are 25.4 percent higher than a year ago. The median price in the Northeast was $249,800, up 8.9 percent from March 2009.

Existing-home sales in the Midwest rose 7.2 percent in March and are 15.5 percent above March 2009. The median price in the Midwest was $139,300, up 0.2 percent from a year ago.

In the South, existing-home sales increased 7.1 percent in March and are 13.9 percent higher than a year ago. The median price in the South was $154,800, up 5.2 percent from March 2009.

Existing-home sales in the West rose 6.6 percent in March and are 14.0 percent above March 2009. The median price in the West was $209,400, down 7.9 percent from a year ago. 

Sales of new single-family houses in March 2010 were at a seasonally adjusted annual rate of 411,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 26.9 percent above the revised February rate of 324,000 and was 23.8 percent above the March 2009 estimate of 332,000.

The median sales price of new houses sold in March 2010 was $214,000; the average sales price was $258,600. The seasonally adjusted estimate of new houses for sale at the end of March was 228,000. This represents a supply of 6.7 months at the current sales rate.

New residential houses sold were up in March over February 2010 35.7 percent in the Northeast, 4.3 percent in the Midwest, 43.5 percent in the South and 5.7 percent in the West. 

According to the U.S. Census Bureau, privately-owned housing starts in March were at a seasonally adjusted annual rate of 626,000. This was 1.6 percent above the revised February estimate of 616,000 and was 20.2 percent above the March 2009 rate of 521,000. Single-family housing starts in March were at a rate of 531,000; this was 0.9 percent below the revised February figure of 536,000. 

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $363.2 billion, an increase of 1.6 percent from the previous month and 7.6 percent above March 2009. Total sales for the January through March 2010 period were up 5.5 percent from the same period a year ago.

Retail trade sales were up 1.8 percent from February 2010 and 8.2 percent above last year. Gasoline stations sales were up 26.4 percent from March 2009 and motor vehicle and parts dealers sales were up 14.1 percent from last year.

Sales at furniture and home furnishings stores in March were up 1.5 percent over February on an adjusted basis and were up 4.2 percent over March 2009. Year-to-date, sales at these stores were up 1 percent over the same period a year ago. 

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in March, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the index increased 2.3 percent before seasonal adjustment.

The seasonally adjusted increase in the all items index was mostly due to an increase in the fresh fruits and vegetables index, which rose 4.6 percent in March and accounted for over 60 percent of the all items increase. Other food at home indexes were mixed and the index for food away from home was unchanged.

The index for energy and for all items less food and energy were both unchanged in March. Within energy, an increase in the electricity index was offset by declines in the indexes for gasoline and natural gas. Within all items less food and energy, the indexes for medical care, new vehicles, and used cars and trucks posted increases, while the indexes for shelter, household furnishings and operations, and apparel declined. 

Nonfarm payroll employment increased by 162,000 in March, and the unemployment rate held at 9.7 percent, according to the U.S. Bureau of Labor Statistics. Temporary help services and health care continued to add jobs over the month. Employment in federal government also rose, reflecting the hiring of temporary workers for Census 2010. Employment continued to decline in financial activities and in information. In March, the number of unemployed persons was little changed at 15.0 million.

According to the U.S. Census Bureau, new orders for manufactured durable goods in March decreased $2.2 billion or 1.3 percent to $176.7 billion. This decrease followed three consecutive monthly increases, including a 1.1 percent February increase. Excluding transportation, new orders increased 2.8 percent. Excluding defense, new orders decreased 1.2 percent.

Transportation equipment, down two consecutive months, had the largest decrease, $5.9 billion or 12.9 percent to $40.2 billion. This was due to nondefense aircraft and parts which decreased $6.5 billion.

Shipments of manufactured durable goods in March, up following two consecutive monthly decreases, increased $2.2 billion or 1.2 percent to $182.2 billion. This followed a 0.5 percent February decrease.

Machinery, up two consecutive months, had the largest increase, $1.0 billion or 4.3 percent to $24.0 billion.

According to the report, shipments in February 2010 of furniture and related products fell 3.3 percent from February 2009. Year-to-date, shipments in this category fell 4.6 percent.

The results for February continued to be encouraging for most manufacturers and distributors. We have heard that some of the momentum from February may have been lost a bit in March, but certainly we have not heard this from everyone. There has been some speculation that some of the uptick has been related to retailers doing some restocking, but there have also been comments from retailers that business was picking up.

Based on all we heard at the High Point Market, it does appear that business is getting better at retail. Maybe not where it once was or even where we would like for it to be—but at least improving.

Most we talked with at Market felt that it was the best market in several. As with retail, while not where everyone wants it to be, but it was clearly a good market for most. We will see when final orders come in over the next few weeks, but from what we heard, even order writing was good for many during market.

While we do not profess to be merchandisers, we saw some really great product in the showrooms. In our opinion, if you couldn’t find "new and exciting" product there, we are not sure where you were looking. Lots of color in upholstery groups and collections in case goods, new materials in cushioning, new features in case goods.

Other than the fact that everyone could use more business, about the only major negative we heard was related to financing. As business begins to pick up, we are concerned as to how manufacturers, distributors and retailers will be able to finance their growth. But that is a much better problem to have than what we have been through. Since no one is expecting "hockey stick" growth patterns, hopefully most will be able to finance their needs.

Many companies have stopped the red ink from losses. As they continue to show improvements, we expect the banks and other financial institutions will eventually come back to the industry. Some who have not treated people very well, will be remembered.

Overall though, we think this was a distinctly improved Market. We didn’t even hear much complaining at all, even about the Market itself. Thanks to the efforts of the High Point Market Authority and all the exhibitors, we think it was a good experience for those who came. Those that did not, missed a good one. 
 

  (R) Revised