Monthly Results
New Orders
According to our recent survey of residential furniture manufacturers and distributors, new orders were up 11 percent in March 2011 compared to March 2010. Last month’s orders were even with February 2010. Orders were up 14 percent over February 2011. In March 2010, orders were up 9 percent over March 2009, so the results for March were not only positive, but were also compared to a good month in March 2010.
The March results put the year-to-date orders up 4 percent over the first quarter of 2010. The first quarter of 2010 report indicated orders up 9 percent over 2009.
Some 64 percent of the participants reported increased orders in March, with some reporting healthy increases. For the quarter, approximately 51 percent of the participants are now reporting increased order rates, up from 44 percent last month.
Shipments and Backlogs
Shipments for March were 7 percent higher than March 2010 when they were 5 percent higher than March 2009. Again, good results when compared to decent results last year. Some 51 percent of the participants reported increased shipments, about the same as last month.
Year-to-date, shipments were up 3 percent over the same period a year ago, when they were up 5 percent over the first quarter of 2009. Approximately 47 percent of the participants reported increased shipments for the quarter.
Backlogs were 5 percent higher than February 2011 due to orders exceeding shipments. Backlogs were 2 percent lower than March 2010 compared to a 5 percent decline reported last month.
Receivables and Inventories
Receivables in March were 3 percent higher than in February, as would be expected with the increase in shipments and were even with February in spite of the increase in shipments. We suspect that was likely a timing issue.
Inventory levels were 3 percent lower than in February but remained 16 percent ahead of last March. Last March 2010, inventories were 19 percent lower than the previous year. Hopefully, inventory levels are not out of hand at this point. With the increased order levels, we would expect inventories to come down somewhat as the year progresses.
Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees fell 2 percent compared to March 2010 but were even with February levels. February employment was also down 2 percent from February 2010.
Factory and warehouse payrolls were up 4 percent over March 2010, up from a 2 percent increase last month. Year-to-date, payrolls are up 3 percent over the first quarter of 2010 when they were 9 percent ahead of the first quarter of 2009. Overall, these payrolls appear to be in line with current volume levels.
National
Consumer Confidence
At the time of the release of our report, The Conference Board’s Consumer Confidence Index was not available.
Thomson Reuters/University of Michigan Surveys of Consumers
According to the Surveys of Consumers Thomson Reuters/University of Michigan survey, “Confidence improved in May as news about job gains more than offset concerns about higher prices. While more optimistic about future changes in employment, the current finances of consumers remain quite bleak. Stagnant incomes and higher prices have meant that consumers judged their inflation adjusted income expectations worse than anytime since the early 1980’s. Moreover, record numbers of consumers thought that their incomes would lag inflation over the next five years. The combination of higher inflation, scarce jobs, and lackluster income growth will continue to restrain consumer spending during the year ahead. Without the payroll tax cut, spending cutbacks would have been quite likely. A stronger forward momentum will be required for spending growth to withstand the end of the payroll tax cut at the close of this year ahead as well as uncertainty about federal tax liabilities in the coming years, especially among higher income households.”
Richard Curtin, Surveys of Consumers chief economist said: “Consumers no longer anticipate a rising standard of living in the next several years. Consumers now give just one chance in three that their income will outpace the inflation rate. It is not that consumers expect escalating inflation. Indeed, the May survey recorded a significant decline in inflation expectations. It is that most consumers do not anticipate higher incomes in the years ahead. While fuel and food inflation is not much of a concern for monetary policy, rising wages would need to be dealt with more seriously as an indicator of higher future inflation.”
The Sentiment Index was 74.3 in the May 2011 survey, up from 69.8 in April and last May’s 73.6. The May gains were concentrated in the Expectations Index, a component of the Index of Leading Economic Indicators, which rose to 69.5 in May from 61.6 in April and May’s 68.8. The gain was due to a more favorable jobs outlook despite concerns about rising prices. The Current Conditions Index was 81.9 in the May 2011 survey, down from 82.5 in April and just above the 81.0 recorded last May.
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 1.8 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 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 federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports, a deceleration in PCE, a larger decrease in federal government spending, and a deceleration in nonresidential fixed investment that were partly offset by a sharp upturn in private inventory investment.
Motor vehicle output added 1.28 percentage points to the first-quarter change in real GDP after subtracting 0.27 percentage point from the fourth-quarter change. Final sales of computers added 0.06 percentage point to the first-quarter change in real GDP after adding 0.35 percentage point to the fourth-quarter change.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. declined in April, the first decrease since June 2010. A majority of the components contributed negatively to the index this month, led by weekly initial unemployment insurance claims (inverted), supplier deliveries, and building permits. With this month’s decline, the six-month change in the index moderated to 3.5 percent (a 7.2 percent annual rate), but it remains above the growth rate of 1.4 percent (a 2.8 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 April. The index rose 1.3 percent (a 2.6 percent annual rate) in the six months through April 2011, faster than the growth of 0.7 percent (a 1.4 percent annual rate) for the previous six months. In addition, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months.
Housing
Existing-Home Sales
According to the National Association of Realtors® (NAR), existing-home sales which are completed transactions that include single-family, townhomes, condominiums and co-ops, eased 0.8 percent to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9 percent below a 5.80 million pace in April 2010; sales surged in April and May of 2010 in response to the home buyer tax credit.
Lawrence Yun, NAR chief economist, said the market is underperforming. “Given the great affordability conditions, job creation and pent-up demand, home sales should be stronger,” he said. “Although existing-home sales are expected to trend up unevenly through next year, unnecessarily tight credit is continuing to restrain the market, along with a steady level of low appraisals that result in contract cancellations.”
A parallel NAR practitioner survey shows 11 percent of Realtors report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10 percent had a contract delayed, and 14 percent said a contract was renegotiated to a lower sales price as a result of a low appraisal.
Single-family home sales slipped 0.5 percent to a seasonally adjusted annual rate of 4.42 million in April from 4.44 million in March, and are 12.6 percent below the 5.06 million pace in April 2010. The median existing single-family home price was $163,200 in April, which is 5.4 percent below a year ago.
Total housing inventory at the end of April increased 9.9 percent to 3.87 million existing homes available for sale, which represents a 9.2-month supply at the current sales pace, up from an 8.3-month supply in March.
Regionally, existing-home sales in the Northeast fell 7.5 percent to an annual pace of 740,000 in April and were 32.1 percent below a year-ago surge. The median price in the Northeast was $225,400, which was 7.3 percent below April 2010.
Existing-home sales in the Midwest rose 5.7 percent in April to a level of 1.12 million but were 16.4 percent below a cyclical peak in April 2010. The median price in the Midwest was $133,200, down 5.1 percent from a year ago.
In the South, existing-home sales declined 1.0 percent to an annual pace of 1.95 million in April and were 9.3 percent below a year ago. The median price in the South was $142,800, which was 4.1 percent lower than April 2010.
Existing-home sales in the West slipped 1.6 percent to an annual level of 1.24 million in April and were 0.8 percent below April 2010. The median price in the West was $203,400, down 6.1 percent from a year ago.
New Residential Sales
According to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000. This was 7.3 percent above the revised March rate of 301,000, but was 23.1 percent below the April 2010 estimate of 420,000.
Sales in all four regions of the country were down in the 19 to 25 percent range.
The median sales price of new houses sold in April 2011 was $217,900; the average sales price was $268,900. The seasonally adjusted estimate of new houses for sale at the end of April was 175,000. This represents a supply of 6.5 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 April were at a seasonally adjusted annual rate of 523,000. This was 10.6 percent below the revised March estimate of 585,000 and was 23.9 percent below the revised April 2010 rate of 687,000. Single-family housing starts in April were at a rate of 394,000; this was 5.1 percent below the revised March figure of 415,000.
Retail Sales
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $389.4 billion, an increase of 0.5 percent from the previous month, and 7.6 percent above April 2010. Total sales for the February through April 2011 period were up 8.1 percent from the same period a year ago.
Retail trade sales were up 0.6 percent from March 2011, and 7.9 percent above last year. Gasoline stations sales were up 21.8 percent from April 2010 and nonstore retailers sales were up 15.5 percent from last year.
Sales at furniture and home furnishings stores (on an adjusted basis) were down 1.1 percent from March but were up 0.8 percent from last April. Year-to-date, sales at these stores are up 0.1 percent over the same period a year ago.
Consumer Prices
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in April on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.
The energy index posted another increase in April as the gasoline index continued to rise, the latter accounting for almost half of the seasonally adjusted all items increase. The household energy index also rose, with all of its major components posting increases. The food index increased as well in April, though the 0.5 percent rise in the food at home index was the smallest increase this year.
The index for all items less food and energy rose 0.2 percent in April, the third increase of that size in the last four months. Indexes making major contributions to that increase included those for new vehicles, used cars and trucks, medical care, and shelter.
Employment
Nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent, according to the U.S. Bureau of Labor Statistics. Job gains occurred in several service-providing industries, manufacturing, and mining.
The number of unemployed persons, at 13.7 million changed little in April. The unemployment rate edged up from 8.8 percent over the month but was 0.8 percentage point lower than in November.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, according to the U.S. Census Bureau. This decrease, down two of the last three months, followed a 4.4 percent March increase. Excluding transportation, new orders decreased 1.5 percent. Excluding defense, new orders decreased 3.6 percent.
Transportation equipment, also down two of the last three months, had the largest decrease at 9.5 percent.
Shipments of manufactured durable goods in April, down following four consecutive monthly increases, decreased $2.0 billion or 1.0 percent to 194.9 billion. This followed a 3.1 percent March increase.
Transportation equipment, also down four consecutive monthly increases, had the largest decrease at 3.0 percent.
According to the U.S. Census Bureau, orders for the furniture and related products category were up 13 percent in March 2011 versus March 2010. Year-to-date, orders were up 7.4 percent. Shipments in this category were up 9 percent for the month and 7.4 percent year-to-date through March.
Summary
The results for March orders and shipments were very good for a change, especially considering the com-parisons to last year’s first quarter, which was also a good quarter. From what we had heard, for many, March was a good month. We expect these kinds of results had something to do with the optimism we felt at the April Market in High Point.
Unfortunately, the good results for the first quarter were not achieved by all participants. Only 51 percent of the participants reported increased orders for the quarter with similar results reported for shipments.
We have heard that April and May began to show some signs of slowing down again. According to the government reports, retail sales at furniture and home furnishings stores in April were down 1.1 percent from March, though up 0.8 percent over last April. Of the 13 categories that are tracked, sales at furniture and home furnishings stores were up 0.1 percent for the four months ended in April, ranking last in terms of growth for all 13 categories. Sales at electronics and appliance stores, up 0.4 percent, and general merchandise stores, up 2.7 percent, were the next lowest in terms of growth. Sales at auto and other motor vehicle dealers were up 15.8 percent.
It is apparent that the higher gas prices are affecting the overall economy, along with sluggish home sales. Home building and sales affect so many people in the economy as the construction industry employs so many people. Also many realtors provide second incomes to families. These incomes being down take a lot of discretionary spending out of the economy.
The good news from what we hear out there is that, while business is not growing at the pace we would like, at least business seems to be bumping along. As we have noted before we just cannot seem to get much traction. For every good day or week, we seem to follow that with a day or week that is not so good.
We are not sure what it will take to get things going in our industry. The employment picture is better with positive job growth, though unemployment is still high and states are running out of money to pay benefits. The stock market has been very positive. We need that to continue, though there are rumblings out there that stocks are over-priced.
If gas prices can settle down, the stock market doesn’t fall too far and we can keep moving employment up, maybe consumer confidence will continue to improve. That seems to be the most important factor these days.
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.