Monthly Results
New Orders
According to our latest survey of residential furniture manufacturers and distributors, new orders in December increased 1 percent over December 2009. This reversed the trend of decreases in orders the last 3 months – September to November. New orders in December were 9 percent lower than November, but December orders are typically less than November due to the holidays. Last year, new orders in December were 12 percent higher than December 2008, so at least the 1 percent increase this year was comparing to a nice increase last year.
Year-to-date, new orders were up 4 percent for the year. This compares to a 13 percent decline reported for 2009 compared to 2008. For the year, approximately 52 percent of the participants reported increased orders. This compares to 91 percent of the participants in 2009 reporting declines in orders versus 2008.
Shipments and Backlogs
Shipments in December were 3 percent higher than December 2009 and 5 percent higher than November. This compared to a flat November to November comparison.
For the year, shipments were up 7 percent over 2009, when they were off 15 percent from 2008. Shipments in 2008 were 12 percent lower than shipments in 2007, so at least for the year, the industry gained a bit of its lost ground over the last few years. Some 74 percent of the participants reported increased shipments for the year.
With shipments exceeding orders for the month, backlogs fell 5 percent from November levels. Backlogs in December were 3 percent lower than December 2009, as shipments exceeded orders for the year.
Receivables and Inventories
Receivables increased 3 percent from last December, in line with the increase in shipments. Receivables fell 4 percent from November in spite of the increase in shipments. Overall, it appears that receivables, at least prior to the Robb and Stucky bankruptcy, were in pretty good shape, in spite of the economy slowing payments.
Inventories were about even with November 2010 levels but were 22 percent higher than December 2009. In December 2009, inventories were 26 percent lower than December 2008. As we have noted before, it appears that inventories were building in anticipation of a good recovery. When that slowed in September to December, inventories appeared to grow to levels that are a bit high based on current business levels.
Factory and Warehouse Employees and Payrolls
Factory and warehouse payrolls were 7 percent higher in December than December a year ago. Payrolls were 20 percent higher than November, but this is somewhat normal due to vacation pay and year end bonuses. Overall, payrolls for the year were 9 percent higher than a year ago. This was pretty much in line considering the 7 percent increase in shipments and the increases in inventory levels.
The number of factory and warehouse employees was 1 percent lower than November and 3 percent lower than December 2009. December 2009 employee levels were 10 percent lower than the number of employees in 2008.
National
Consumer Confidence
According to the Conference Board, the Consumer Confidence Index®, which had increased in January, improved further in February. The Index now stands at 70.4 (1985=100), up from 64.8 in January. The Present Situation Index improved to 33.4 from 31.1. The Expectations Index increased to 95.1 from 87.3 last month.
Lynn Franco, Director of The Conference Board Consumer Research Center said: “The Consumer Confidence Index is now at a three-year high (Feb. 2008, 76.4), due to growing optimism about the short-term future. Consumers’ assessment of current business and labor market conditions has improved moderately, but still remains rather weak. Looking ahead, consumers are more positive about the economy and their income prospects, but feel somewhat mixed about employment conditions.”
Consumers’ appraisal of present-day conditions improved moderately in February.
Those stating business conditions are “good” increased to 12.4 percent from 11.3 percent, while those claiming business conditions are “bad” was unchanged at 39.6 percent. Consumers’ assessment of the labor market was also more positive than in January. Those saying jobs are “plentiful” rose to 4.9 percent from 4.6 percent, while those stating jobs are “hard to get” decreased to 45.7 percent from 47.0 percent.
Consumers’ short-term outlook was more optimistic than in January. Those expecting business conditions to improve over the next six months increased to 24.4 percent from 24.0 percent, while those anticipating business conditions will worsen declined to 10.4 percent from 12.2 percent.
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 2.8 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent.
The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by negative contributions from private inventory investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
Leading Economic Indicators
The Leading Economic Index® (LEI) for the U.S. increased slightly in January, according to the Conference Board. Positive contributions from the yield spread, index of supplier deliveries and stock prices barely offset the large negative contributions from building permits, weekly initial unemployment claims (inverted), and the average workweek. Between July 2010 and January 2011, the leading economic index increased 3.0 percent (a 6.1 percent annual rate), moderately faster than the increase of 2.2 percent (a 4.4 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have been widespread in recent months.
The Conference Board’s Coincident Economic Index® (CEI) for the U.S., a measure of current economic activity, also increased slightly in January. The six-month change in the index stands at 0.8 percent (a 1.6 percent annual rate) in the period through January 2011, down from 1.4 percent (a 2.8 percent annual rate) for the previous six months. The lagging economic index fell slightly this month, and the coincident-to-lagging ratio rose, as a result.
Housing
Existing-Home Sales
The uptrend in existing-home sales continued, with January sales rising from the third consecutive month with a pace that is now above year-ago levels, according to the National Association of Realtors® (NAR).
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 2.7 percent to a seasonally adjusted annual rate of 5.36 million in January from a downwardly revised 5.22 million in December, and are 5.3 percent above the 5.09 million level in January 2010. This is the first time in seven months that sales activity was higher than a year earlier.
Single-family home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.69 million in January from 4.58 million in December, and are 4.9 percent higher than the 4.47 million level in January 2010. The median existing single-family home price was $159,400 in January, down 2.7 percent from a year ago.
Lawrence Yun, NAR chief economist, said the improvement is good but could be better. “The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence,” Yun said. “The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity.”
A parallel NAR practitioner survey shows first-time buyers purchased 29 percent of homes in January, down from 33 percent in December and 40 percent in January 2010 when an extended tax credit was in place.
The national median existing-home price for all housing types was $158,800 in January, down 3.7 percent from January 2010. Distressed homes edged up to a 37 percent market share in January from 36 percent in December; it was 38 percent in January 2010.
Total housing inventory at the end of January fell 5.1 percent to 3.38 million existing homes available for sale, which represents a 7.6-month supply at the current sales pace, down from an 8.2-month supply in December. The inventory supply is at the lowest level since December 2009 when there was a 7.3-month supply.
Regionally, existing-home sales in the Northeast fell 4.6 percent in January from a spike in December and were 1.2 percent below January 2010. The median price in the Northeast was $236,500, which is 4.0 percent below a year ago.
Existing-home sales in the Midwest rose 1.8 percent in January and were 3.6 percent above a year ago. The median price in the Midwest was $126,300, which is 3.2 percent below January 2010.
In the South, existing-home sales increased 3.6 percent in January and were 8.0 percent higher than January 2010. The median price in the South was $136,600, down 2.1 percent from a year ago.
Existing-home sales in the West rose 7.9 percent in January and were 7.0 percent above January 2010. The median price in the West was $193,200, down 5.7 percent from a year ago.
New Residential Sales
Sales of new single-family houses in January 2011 were at a seasonally adjusted annual rate of 284,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 12.6 percent below the revised December rate of 325,000 and was 18.6 percent below the January 2010 estimate of 349,000.
The 18.6 percent decline from a year ago was led by a 25.5 percent decline in the Midwest, followed by declines of 19 percent in the Northeast, 17.8 percent in the South and 15.4 percent in the West.
The median sales price of new houses sold in January 2011 was $230,600; the average sales price was $260,300. The seasonally adjusted estimate of new houses for sale at the end of January was 188,000. This represents a supply of 7.9 months at the current sales rate.
Housing Starts
According to the joint release of the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, privately-owned housing starts in January were at a seasonally adjusted annual rate of 596,000. This was 14.6 percent above the revised December estimate of 520,000, but was 2.6 percent below the January 2010 rate of 612,000.
Single-family housing starts in January were at a rate of 413,000; this was 1.0 percent below the revised December figure of 417,000. The January rate for units in buildings with five units or more was 171,000.
Retail Sales
The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $381.6 billion, an increase of 0.3 percent from the previous month, and 7.8 percent above January 2010. Total sales for the November 2010 through January 2011 period were up 7.6 percent from the same period a year ago.
According to the report, retail trade sales were up 0.5 percent from December 2010, and 8.3 percent above last year. Auto and other motor vehicle dealers sales were up 16.7 percent from January 2010 and nonstore retailers sales were up 13.5 percent from last year.
Sales at furniture and home furnishings stores in January were about even with December 2010 sales. Sales at these stores were up 0.9 percent from January 2010 on an adjusted basis.
Consumer Prices
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in January on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 1.6 percent before seasonal adjustment.
Increases in indexes for energy commodities and for food accounted for over two thirds of the all items increase. The indexes for gasoline and fuel oil both increased in January, continuing their recent strong upward trend. The index for food at home posted its largest increase in over two years with all six major grocery store food group indexes rising.
The index for all items less food and energy also rose in January. The indexes for apparel, shelter, airline fares, and recreation all posted increases. In contrast, the indexes for new vehicles and for used cars and trucks declined in January.
Over the last 12 months, the food index has risen 1.8 percent with the food at home index up 2.1 percent; both 12-month changes are the highest since 2009. The energy index has increased 7.3 percent over the last 12 months, with the gasoline index up 13.4 percent. The energy for all items less food and energy has risen 1.0 percent.
Employment
The unemployment rate fell by 0.4 percentage point to 9.0 percent in January, while nonfarm payroll employment changed little (+36,000), according to the U.S. Bureau of Labor Statistics. Employment rose in manufacturing and in retail trade but was down in construction and in transportation and warehousing. Employment in most other major industries changed little over the month.
The number of unemployed persons decreased by 600,000 in January to 13.9 million, while the labor force was unchanged.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in January increased $5.3 billion or 2.7 percent to $200.5 billion, according to the U.S. Census Bureau. This increase followed three consecutive monthly decreases including a 0.4 percent December decrease. Excluding transportation, new orders decreased 3.6 percent. Excluding defense, new orders increased 1.9 percent.
Shipments of manufactured durable goods in January, up four of the last five months, increased $0.6 billion or 0.3 percent to $202.9 billion. This followed a 2.3 percent December increase.
Primary metals, up six consecutive months, had the largest increase, $0.9 billion or 4.0 percent to $23.0 billion.
According to this report, shipments of furniture and related products were up 6.6 percent over December 2009. Year-to-date shipments in this category were up 2.1 percent over 2009. New orders in this category were up 2.3 percent over December 2009 and up 2.9 percent for the year.
Consumer Credit
Consumer credit increased at an annual rate of 2½ percent in the fourth quarter. Revolving credit declined at an annual rate of 2¾ percent and nonrevolving credit increased at an annual rate of 5½ percent. For December, revolving credit increased 3.5 percent.
Summary
After four long years of declining orders and sales, our participants finally had a year where both sales and orders were up for the year. It has certainly been a long hard grind over that period. From 2005 to 2009, orders and sales in total have declined some 30 percent. While some of the dollar decline has been due to lower prices of both imported and domestically produced goods, such a decline certainly took a toll on the industry.
It seems that 2011 has started with improved consumer confidence and an improved economy in general, although real improvement has only been in certain sectors. Yet, unrest in the Middle East, as well as even in some states, is causing some concerns, especially in oil prices, which affects not only gasoline but also so many other products that come from oil based products.
Adding to that, commodity prices are increasing substantially in certain areas. It looks like we are in for some inflation which is going to have to drive up prices. Weather in December, January and February has also dampened retail sales, especially in furniture as people had to deal with all of those issues.
We were sad to hear the news about Robb and Stucky. Their bankruptcy not only affects those jobs, but clearly has not been good for several manufacturers and distributors. Clearly many of their markets were hurt extremely bad by the housing collapse.
All that said, Spring is not too far away. In spite of the above negatives, consumers do seem to feel better about the economy. While job growth is not what we want or need, it seems that the fears of losing jobs is not as rampant.
We continue to believe that 2011 will be somewhat better than 2010. That comes with the proverbial “but.” That being all the factors mentioned above not bringing consumers down again. But overall, corporate profits are continuing to do well. With that comes job stability. Hopefully, the Middle East mess will be at least more stable than it currently is and oil prices will settle down.
We do not expect the first quarter to be anything to write home about, but if we can keep the economy at least plugging along, 2011 should see some improvement. The good news is that most companies have “right sized” themselves (not fond of that phrase), so if you could make money last year or at least hang on, 2011 should be somewhat better – notice we did not say any “easier.”
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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