Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

Monthly Results

New Orders
According to our recent survey of residential furniture manufacturers and distributors, new orders in April 2010 were 12 percent higher than April 2009. This compared to a 27 percent decline in April 2009 when compared to April 2008. The increase in April marked the sixth consecutive monthly increase in orders when compared to the same month a year before. Approximately 73 percent of the participants reported increased orders over a year ago, with some reporting significant double digit growth.

Year-to-date, new orders are now up 10 percent over the first four months of last year. Last year at this time, new orders were off 22 percent from the first four months of 2008. Some 66 percent of the participants are now positive for the year-to-date, up from 61 percent last month.

The April results this year may have been impacted by the timing of market. The April 2009 High Point Market dates were April 25 to April 30, while the 2010 dates were April 17 to April 22. This may have some impact on the timing of orders received. Any real differences should even out when the May results are in.

Shipments and Backlogs 
Shipments in April were up again, improving 6 percent over April 2009. April 2009 shipments were 21 percent below April 2008. Approximately 73 percent of the participants also reported higher shipments in April versus a year ago.

Year-to-date, shipments are now up 5 percent for the participants versus a decline at this time last year of 21 percent. Some 68 percent of the participants are reporting increased year-to-date shipments, up from 61 percent last month.

Backlogs in April fell 1 percent from March but were up 44 percent over last April. Again, timing of the April Market may have had some impact on the April to April results. We continue to expect shipments to catch up with orders over the next few months.

Receivables and Inventories
Receivables fell 4 percent from last April and were down 3 percent from March levels, in spite of a 14 percent decline in shipments from March to April. Again, there may be some timing issues, but we will need to watch these results over the next few months. As retailers begin to need to finance new business, some may need to ride vendors a bit longer.

Inventories increased 2 percent over March but remained 13 percent lower than April 2009 levels. Inventories in April 2009 were 12 percent lower than April 2008. It appears that most of the participants have reduced inventories to more appropriate levels considering current volume levels.

Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees were flat with March 2010 and was also even with the number in April 2009 when they were down 21 percent from a year ago. This result seems to also indicate that business has bottomed out, at least for now, and is hopefully starting an upward trend.

Payrolls were 9 percent higher than a year ago but off 14 percent from March. The number of working days was higher in March versus April which likely had some impact on the 14 percent decline.

National

Consumer Confidence
The Conference Board Consumer Confidence Index which had been on the rise for three consecutive months, declined sharply in June. The Index now stands at 52.9 (1985=100), down from 62.7 in May. The Present Situation Index decreased to 25.5 from 29.8. The Expectations Index declined to 71.2 from 84.6 last month.
Lynn Franco, Director of The Conference Board Consumer Research Center said: Consumer confidence, which had posted three consecutive monthly gains and appeared to be gaining some traction, retreated sharply in June. Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence. Until the pace of job growth picks up, consumer confidence is not likely to pick up.
Consumers appraisal of present-day conditions was less favorable in June. Those saying conditions are good decreased to 8.0 percent from 9.7 percent, while those saying business conditions are bad increased to 42.4 percent from 39.5 percent. Consumers assessment of the labor market was also less favorable. Those claiming jobs are hard to get increased to 44.8 percent from 43.9 percent, while those saying jobs are plentiful decreased to 4.3 percent from 4.6 percent.

Consumers short-term outlook, which had improved significantly last month, turned more pessimistic in June. Those anticipating an improvement in business conditions over the next six months decreased to 17.2 percent from 22.8 percent, while those expecting conditions will worsen rose to 14.9 percent from 11.9 percent.

Reuters/University of Michigan Surveys of Consumers
There was a bit of different news from this report. Confidence rose modestly in June to 76.0 from 73.6 in May and 70.8 last June. The gain was enough to push the Sentiment Index to its highest level since January 2008, according to the Surveys of Consumers Thomson Reuters/University of Michigan Survey. The cumulative gain from the low of 55.3 in November 2008 has restored half of the decline from the January 2007 peak of 96.9. The Expectations Index, a component of the Index of Leading Indicators, also reached its peak in January 2007a year before the start of the recession and two years before it was declared. The Expectations Index recorded its trough in June 2008, also about one year before the end of the recession. Unfortunately, during the past 12 months the Expectations Index has not posted any further gains, signaling that consumers expect a very slow pace of growth in the year ahead.

According to the report, the slow rise in the Index of Consumer Sentiment during the past year has been due to how consumers view current conditions in the economy. The improvement was not because consumers now view the economy more favorably, but that any improvement, however small, was seen as a welcome development after the unprecedented economic recession. News heard about jobs has changed dramatically, for example. Reports of net job changes rose to the most favorable level in five years in June. Despite the gains, consumers did not anticipate significant declines in unemployment in the year ahead. Rather, the majority of consumers expected unemployment to remain largely unchanged at current levels during the next twelve months. Richard Curtin, the Surveys chief economist said, Overall, confidence is strong enough to support the continued growth in consumption, although the pace of growth will slow into the start of 2011. The survey data indicate real spending growth will average 2.5 percent in 2010.

Gross Domestic Product (GDP)
Real gross domestic product  the output of goods and services produced by labor and property located in the United States  increased at an annual rate of 2.7 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the third estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2009, real GDP had increased 5.6 percent. In the second estimate, the increase in real GDP was 3.0 percent.

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

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a deceleration in nonresidential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE.

Leading Economic Indicators
The Conference Board Leading Economic Index (LEI) for the United States increased 0.4 percent in May, following no change in April, and a 1.4 percent rise in March.

The index points to continued, though slower, U.S. growth for the rest of this year, says Bart van Ark, chief economist of The Conference Board. Public debt and deficits weigh heavily on growth prospects on both sides of the Atlantic. We project a serious slowdown in European growth in 2011, which could further weaken the U.S. outlook.

The LEI for the United States has been rising since April 2009, and though its growth rate has slowed in 2010, it is well above its most recent peak in December 2006, says Ataman Ozyildirim, economist at The Conference Board. Correspondingly, current economic conditions, as measured by The Conference Board Coincident Economic Index (CEI) for the United States, have been improving steadily since November 2009, thanks to gains in payroll employment and industrial production.

Housing

Existing-Home Sales
Existing-home sales remained at elevated levels in May on buyer response to the tax credit, characterized by stabilizing home prices and historically low mortgage interest rates, according to the National Association of Realtors. Gains in the West and South were offset by a decline in the Northeast; the Midwest was steady.
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2 percent from an upwardly revised surge of 5.79 million units in April. May closings are 19.2 percent above the 4.75 million-unit level in May 2009.

Single-family home sales declined 1.6 percent to a seasonally adjusted annual rate of 4.98 million in May from a pace of 5.06 million in April, but are 17.5 percent above the 4.24 million level in May 2009. The median existing single-family home price was $179,400 in May, which is 2.7 percent above a year ago.
Lawrence Yun, NAR chief economist, said he expects one more month of elevated home sales. We are witnessing the ongoing effects of the home buyer tax credit, which well also see in June real estate closings, he said. However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said home prices have been stabilizing all year. With distressed sales at roughly the same level as a year ago, the gain in home prices is a hopeful sign that the market is in a good position to stand on its own without further government stimulus, she said.

Regionally, existing-home sales in the Northeast fell 18.3 percent in May from a surge in April, but are 12.7 percent higher than a year ago. The median price in the Northeast was $240,200, down 2.2 percent from May 2009.

Existing-home sales in the Midwest were unchanged in May and are 22.0 percent above May 2009. The median price in the Midwest was $150,700, up 2.2 percent from a year ago.

In the South, existing-home sales increased 0.5 percent in May and are 22.9 percent above a year ago. The median price in the South was $159,000, up 1.0 percent from May 2009.

Existing-home sales in the West rose 4.9 percent in May and are 15.2 percent higher than May 2009. The median price in the West was $221,300, up 7.4 percent from a year ago.

New Residential Sales
Sales of new single-family houses in May 2010 were at a seasonally adjusted annual rate of 300,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 32.7 percent below the revised April rate of 446,000 and is 18.3 percent below the May 2009 estimate of 367,000.

The median sales price of new houses sold in May 2010 was $200,900; the average sales price was $263,400. The seasonally adjusted estimate of new houses for sale at the end of May was 213,000. This represents a supply of 8.5 months at the current sales rate.

The April to May comparison was across the board in all regions. The comparison to May a year ago was mixed, with sales down 16.7 percent in the South and 43.3 percent in the West, while sales were up in the Northeast  12 percent and up 6.3 percent in the Midwest.

Housing Starts
According to the U.S. Census Bureau, privately-owned housing starts in May were at a seasonally adjusted annual rate of 593,000. This was 10.0 percent below the revised April estimate of 659,000, but was 7.8 percent above the May 2009 rate of 550,000.

Single-family housing starts in May were at a rate of 468,000; this was 17.2 percent below the revised April figure of 565,000.

Retail Sales
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $362.5 billion, a decrease of 1.2 percent from the previous month, but 6.9 percent above May 2009. Total sales for the March through May 2010 period were up 8.1 percent from the same period a year ago.

Retail trade sales were down 1.4 percent from April 2010, but 7.4 percent above last year. Gasoline stations sales were up 20.2 percent from May 2009 and nonstore retailers sales were up 15.6 percent from last year.
Sales at furniture and home furnishings stores were up 1 percent from April on an adjusted basis and up 5.3 percent over May 2009. For the five months of 2010, sales at these stores were up 2.7 percent.

Consumer Prices
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) declined 0.2 percent in May on a seasonally adjusted basis. Over the last 12 months, the index increased 2.0 percent before seasonal adjustment.

For the second month in a row a decline in the energy index accounted for the seasonally adjusted decrease in the all items index. The index for energy decreased 2.9 percent in May and more than offset a slight increase in the index for all items less food and energy. The food index was unchanged. Within the energy component, the gasoline index accounted for most of the decrease, although all the major energy indexes declined.

The index for all items less food and energy increased 0.1 percent in May, posting a monthly increase for only the second time this year. Contributing to the May rise were increases in a number of indexes including shelter, used cars and trucks, tobacco, apparel, and medical care. The index has increased 0.9 percent over the last 12 months.

Employment
According to the U.S. Bureau of Labor Statistics, total nonfarm payroll employment grew by 431,000 in May, reflecting the hiring of 411,000 temporary employees to work on Census 2010. Private-sector employment changed little (+41,000). Manufacturing, temporary help services, and mining added jobs, while construction employment declined. The unemployment rate edged down to 9.7 percent.

Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in May decreased 1.1 percent to $192.0 billion, according to the U.S. Census Bureau. This decrease followed five consecutive monthly increases including a 3.0 percent April increase. Excluding transportation, new orders increased 0.9 percent. Excluding defense, new orders decreased 1.1 percent.

Transportation equipment, down three of the last four months, had the largest decrease, at 6.9 percent. This was led by nondefense aircraft and parts.

Shipments of manufactured durable goods in May, down following two consecutive monthly increases, decreased $0.8 billion or 0.4 percent. This followed a 1.8 percent April increase.
According to this report, shipments of furniture and related products increased 1.7 percent in April versus April 2009 and were up 1.8 percent for the first five months of the year. New orders were up 0.7 percent year-to-date for these products.

Consumer Credit
Consumer credit increased 0.5 percent in April according to the Federal Reserve Statistical Release. A 12 percent decline in revolving credit was offset by a 7.1 percent increase in non-revolving credit.

Summary
The positive news continued in April for residential furniture manufacturers and distributors. While comparisons to 2009 do not tell the whole story, (since 2009 was not only a tough year and it followed a tough year in 2008 as well) it does appear that we have at least hit bottom. Of course, that all assumes we do not have the double dip that some are worried about with the economy as a whole.

Many of the economic models out there do not suggest a double dip, yet we do not know what the impact of the global issues we are experiencing will have. For the time being, we feel that we are getting some momentum back.

Momentum is clearly needed for most in the industry, both at retail and manufacturing and distribution. We just completed our annual survey of operating statistics. The results were not very pretty this year, though it did appear that many participants made some hard adjustments during the year that improved their profitability or at least reduced their losses.

Most companies have infrastructures in place that require sufficient volume to cover fixed costs. There had certainly been some good people cut from good companies in the last couple of years. We hope that the business improvement continues or we could lose more companies than we already have.

With the High Point Market dates changing to earlier in April versus the last week, we will need to look at April and May results together to see if there is any impact from the date changes. While we have heard some slower order activity in May, some have noted that May and June have not been all bad.  Clearly not what everyone wants, but at least not all bad.

We need consumer confidence back. And we need housing to continue to pick up. While we expect housing to fall off a bit after the tax credits, it does appear that housing prices in most areas have also bottomed out. That is a good thing.