Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

New Orders

New orders in November 2010 were 5 percent lower than November 2009, according to our recent survey of residential furniture manufacturers and distributors. New orders in November 2009 were 10 percent higher than November 2008, so the decline this year was at least not from a weak month in 2009. The decline in orders was not unexpected. As we noted last month, based on our conversations, the fourth quarter of 2010 clearly slowed from the momentum that was built in late 2009 and early 2010.

New orders were up 3 percent from October 2010. Year-to-date, new orders were up 4 percent for the eleven months, down from a 5 percent increase through October. New orders for the month were down for 80 percent of the participants, up from 73 percent last month. Year-to-date, approximately ½ of the participants are now showing an increase in orders, down from 57 percent last month and 60 percent in September.

Shipments and Backlogs 

Shipments in November were basically even with November 2009 and up 1 percent over October. Shipments in November 2009 were down 1 percent compared to November 2008. Approximately one-half the participants reported increased shipments in November compared to last November.

Year-to-date, shipments were up 7 percent for the eleven months over the same period a year ago. The first eleven months of 2009 were down 17 percent from the same period in 2008. For the year-to-date, shipments were up for 79 percent of the participants, up slightly from last month.

With orders exceeding shipments for the month, backlogs increased slightly, up 3 percent. Backlogs are now 2 percent lower than they were in November 2009.

Receivables and Inventories

Receivable levels were up 6 percent over November 2009, much more in line with the year-to-date shipment levels, though still a bit high when comparing the last two month’s shipments comparisons. But they were 9 percent higher in October versus October 2009, so the trend is moving in the right direction.

Inventories were 18 percent higher than November a year ago, down slightly from a 19 percent increase reported last month. Inventories were down 3 percent from October which seems to indicate that companies are attempting to get inventories back in line with current business conditions.

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees were off 1 percent from November 2009 as well as 1 percent lower than October 2010. After five months of increases over the previous year, both October and November employee levels dropped slightly. As with inventories, we believe companies are adjusting to the slower business conditions in the fourth quarter of 2010.

Factory and warehouse payrolls were actually up 4 percent over November 2009 but were down 4 percent from October. Year-to-date, these payrolls are up 10 percent over the same period a year ago. In November 2009, year-to-date payrolls were 18 percent lower than the same period in 2008.

National

Consumer Confidence

According to the Conference Board, the Consumer Confidence Index®, which had dipped in December, increased in January. The Index now stands at 60.6 (1985=100), up from 53.3 in December. The Present Situation Index improved to 31.0 from 24.9. The Expectations Index increased to 80.3 from 72.3 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumers have begun the year in better spirits. As a result, the Index is now near levels not seen since last spring (May 2010, Index 62.7). Consumers rated business and labor market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead. Income expectations are also more positive. Although pessimists still outnumber optimists, the gap has narrowed.”

Consumers’ assessment of current conditions was more positive in January. Those saying business conditions are “good” increased to 9.8 percent from 7.7 percent, while those saying business conditions are “bad” was virtually unchanged at 40.4 percent. Consumers’ appraisal of the job market was also more upbeat than last month. Those claiming jobs are “plentiful” rose to 5.2 percent from 4.2 percent, while those claiming jobs are “hard to get” declined to 43.4 percent from 46.0 percent.

Consumers’ short-term outlook was more optimistic than in December. Those anticipating an improvement in business conditions over the next six months increased to 19.0 percent from 16.8 percent, while those anticipating business conditions will worsen decreased to 11.3 percent from 11.8 percent. Consumers were also more optimistic about the job market. Those anticipating more jobs in the months ahead increased to 16.0 percent from 14.2 percent, while those expecting fewer jobs declined to 17.5 percent from 19.2 percent. The proportion of consumers expecting an increase in their incomes rose to 11.4 percent from 9.9 percent.

Leading Economic Indicators

The Conference Board Leading Economic Index® (LEI) for the U.S. increased again in December. According to the report, building permits and the interest rate spread made large positive contributions to the index this month, more than offsetting the negative contribution from the index of supplier deliveries. The six-month change in the index has picked up to 3.3 percent (a 6.7 percent annual rate) in the period through December 2010, from 2.4 percent (about a 5.0 percent annual rate) for the previous six months. In addition, the strengths among the leading indicators have been widespread in recent months.

The Conference Board Coincident Economic Index® (CEI) for the U.S., a measure of current economic activity, continued to increase in December, with all its components advancing. The six-month change in the index stands at 0.7 percent (a 1.4 percent annual rate) in the period through December 2010, down from 1.4 percent (a 2.8 percent annual rate) for the previous six months. The Conference Board LEI for the U.S. remains on an upward trend, and its six-month growth rate has continued to accelerate. In addition, the strengths among its components have grown more widespread in recent months.

Housing

Existing-Home Sales

According to the National Association of Realtors® (NAR), existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months.
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 12.3 percent to a seasonally adjusted annual rate of 5.28 million in December from an upwardly revised 4.70 million in November, but remain 2.9 percent below the 5.44 million pace in December 2009.

Single-family home sales jumped 11.8 percent to a seasonally adjusted annual rate of 4.64 million in December from 4.15 million in November, but are 2.5 percent below the 4.76 million level in December 2009. The median existing single-family home price was $169,300 in December, down 0.2 percent from a year ago.

Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

The national median existing-home price for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

The modest rise in distressed sales, which typically are discounted 10 to 15 percent relative to traditional homes, dampened the median price in December, but the flat price trend continues,” Yun explained.

Total housing inventory at the end of December fell 4.2 percent to 3.56 million existing homes available for sale, which represents an 8.1-month supply at the current sales pace, down from a 9.5-month supply in November.

Regionally, existing-home sales in the Northeast jumped 13.0 percent in December but were 5.4 percent below December 2009. The median price in the Northeast was $237,300, which was 1.4 percent below a year ago.

Existing-home sales in the Midwest rose 11.0 percent in December but were 4.3 percent below a year ago. The median price in the Midwest was $139,700, up 3.3 percent from December 2009.

In the South, existing-home sales increased 10.1 percent in December but were 2.5 percent below December 2009. The median price in the South was $148,400, unchanged from a year ago.

Existing-home sales in the West surged 16.7 percent in December but remained 1.5 percent below December 2009. The median price in the West was $204,000, down 5.6 percent from a year ago.

New Residential Sales

The U.S. Census Bureau and the Department of Housing and Urban Development reported that sales of new single-family houses in December 2010 were at a seasonally adjusted annual rate of 329,000. This was 17.5 percent above the revised November rate of 280,000, but was 7.6 percent below the December 2009 estimate of 356,000.

The median sales price of new houses sold in December 2010 was $241,500; the average sales price was $291,400. The seasonally adjusted estimate of new houses for sale at the end of December was 190,000. This represents a supply of 6.9 months at the current sales rate.

An estimated 321,000 new homes were sold in 2010. This was 14.2 percent below the 2009 figure of 375,000. For the year, sales were down 2.2 percent in the Northeast, 18.1 percent in the Midwest, 14.3 percent in the South and 16.0 percent in the West.

Housing Starts

According to the U.S. Census Bureau, privately-owned housing starts in December were at a seasonally adjusted annual rate of 529,000. This was 4.3 percent below the revised November estimate of 553,000 and was 8.2 percent below the December 2009 rate of 576,000. Single-family housing starts in December were at a rate of 417,000; this was 9.0 percent below the revised November figure of 458,000. For the year 2010, single unit housing starts were up 5.8 percent, with the Northeast leading the way at 19.0 percent, the South up 6.3 percent followed by the Midwest up 3.7 percent. The West results were flat compared to the previous year.

Retail Sales

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $380.9 billion, an increase of 0.6 percent from the previous month, and 7.9 percent above December 2009. Total sales for the 12 months of 2010 were up 6.6 percent from 2009. Total sales for the October through December 2010 period were up 7.8 percent from the same period a year ago.

Retail trade sales were up 0.7 percent from November 2010, and 8.2 percent above last year. Nonstore retailers sales were up 15.0 percent from December 2009 and auto and other motor vehicle dealers sales were up 14.7 percent from last year.
On an adjusted basis, sales at furniture and home furnishings stores were up 1.4 percent over December 2009. For the year, sales at these stores increased 2.3 percent over 2009. For the fourth quarter, sales at these stores were up 1.8 percent over the same quarter a year ago.

Consumer Prices

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in December on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.

The energy index increased in December. The gasoline index rose sharply and accounted for about 80 percent of the all items seasonally adjusted increase. The household energy index, which declined in November, increased as well. The food index increased slightly in December, with the fruits and vegetables index rising notably.

The index for all items less food and energy also rose in December. An increase in the shelter index accounted for about 60 percent of the rise, and the indexes for airline fares, medical care and apparel rose as well. These increases more than offset declines in the indexes for communication, recreation, and house-hold furnishings and operations.

The rate of increase in the CPI slowed in 2010 as the December to December increase fell from 2.7 percent in 2009 to 1.5 percent in 2010. A deceleration in the gasoline index accounted for much of the slowdown, as it increased 13.8 percent in 2010 after rising 53.5 percent in 2009. The index for household energy, which declined in 2009, rose 0.8 percent in 2010 as increases in the indexes for fuel oil and electricity more than offset a decline in the natural gas index. The energy index as a whole, which rose 18.2 percent in 2009, increased 7.7 percent in 2010.

The index for all items less food and energy also decelerated in 2010. After rising 1.8 percent in both 2008 and 2009, the index increased 0.8 percent in 2010, the smallest December-December increase in the history of the index. Several indexes turned down in 2010. The indexes for recreation and household furnishings and operations, which both declined in 2009, posted larger decreases in 2010.

Employment

The U.S. Bureau of Labor Statistics reported that the unemployment rate fell by 0.4 percentage point to 9.4 percent in December, and nonfarm payroll employ-ment increased by 103,000. Employment rose in leisure and hospitality and in health care but was little changed in other major industries.

The number of unemployed persons decreased by 556,000 to 14.5 million in December. Over the year, these measures were down from 15.2 million and 9.9 percent, respectively.

Durable Goods Orders and Factory Shipments

According to the U.S. Census Bureau, new orders for manufactured durable goods in December decreased 2.5 percent. This decrease, down four of the last five months, followed a 0.1 percent November decrease. Excluding transportation, new orders decreased 0.5 percent. Excluding defense, new orders decreased 2.5 percent.
Shipments of manufactured durable goods in December increased 1.4 percent. This followed a 0.5 percent November increase.

According to the U.S. Census Bureau, shipments for furniture and related products were up 6.8 percent in November versus November 2009. For the year-to-date, shipments were up in this category 1.7 percent. New orders were up 8.4 percent over November 2009, with year-to-date increases of 2.8 percent.

Consumer Credit

Overall, consumer credit was little changed in November according to the Federal Reserve Statistical Release. Revolving credit was down 6.3 percent but that was offset by increases in nonrevolving of 4.2 percent.

Summary

As we noted earlier, the decline in new orders from November 2009 to November 2010 of 5 percent was not totally unexpected. November 2009 orders were up 10 percent over 2008 so we were going up against pretty strong results from last year. Nevertheless, it does seem that the fourth quarter seemed to stall some of the momentum we had gained earlier in the year.

Shipments have remained on the positive side, but shipments in the first quarter will likely be negatively affected by the slight decline in orders. But at least, both orders and shipments for the 11 months were on the positive side after three years of declining orders and shipments (with 2008 and 2009 reporting double digit declines).
On another positive note, consumer confidence seems to be gaining some much needed ground. This has clearly been helped by the significant improvement in the stock market, finally knocking on the 12,000 mark for the Dow Jones and S&P right at 1,300. If we can keep some of this momentum, that should free up some consumer purse strings.

We do not like to deal in politics so all we will say is that we believe most Americans believe spending at the government level is/has been out of control. At least we are now at least talking about doing something about it. In addition, at least consideration is being given to some of the parts of the healthcare bill that so many were concerned about. Overall, we believe if Washington at least shows some signs of controlling spending and not cutting deficits by raising taxes, most Americans will feel better.

Overall, the economy does seem to be showing real signs of improvement – even if not in furniture sales. The increase in vehicle sales, without cash for clunkers, gives us hope that Americans are feeling a bit better about the economy. Also, the housing market seems to have stabilized in most areas of the country with some positive trends.

In addition, while the unemployment rate is still extremely high, the employment situation seems to have stabilized. With corporate profits returning to stronger levels, some hiring will begin to occur. If we can keep unemployment at least stabilized, confidence will improve from this as well.

With all of that said, it seems that there is some positive news for consumers. When some of this improvement in confidence converts to more furniture sales, we are not sure. But we do expect 2011 to be a more kinder and gentler year than the last four years have been.