Monthly Results
New Orders
According to our recent survey of residential furniture manufacturers and distributors, new orders in July 2011 were up 8 percent over July 2010 orders. July 2010 orders were 3 percent higher than July 2009. Orders were 8 percent lower than June 2011 orders, but the change from June to July is normal as we normally see some decline in a June to July comparison.
Year-to-date, new orders remained 5 percent ahead of 2010. Through July 2010, orders were up 9 percent over 2009 results. We are not able to track units (since we have never been able to determine what units should be measured), so we think that some of the increase reported is attributable to price increases. What we heard over the spring and summer months was that many were putting in price increases this summer, mostly in the 3 to 5 percent range, so some of our increase in orders likely relates to these increases.
Despite the 8 percent increase for July, only 52 percent of the participants reported increased orders, the same as last month, but some participants had some very healthy increases. Next month, we will see if some of this was timing. Year-to-date, some 58 percent of the participants are reporting increased orders, down slightly from 62 percent last month.
Shipments and Backlogs
Shipments in July were 1 percent lower than July 2010. Some of this could be timing as July 2010 shipments were 15 percent higher than July 2009. Shipments in July 2011 were 19 percent lower than June 2011, a somewhat normal result due to most companies taking off the week of July 4th, with very little shipping that week.
Year-to-date, shipments remained 3 percent ahead of 2010 with approximately 62 percent of the participants reporting increased shipments.
Backlogs increased 4 percent over last year and were up slightly over June. This is likely affected by some import orders not being shipped as quickly as orders are taken.
Receivables and Inventories
Receivable levels were down 2 percent from last year, in line with the 1 percent reduction in shipments. Interestingly they were only down 2 percent from June in spite of the 19 percent decline in shipments. But for some reason, this seems to happen each year. Most likely this is due to little billing the week of the 4th, causing payments to be delayed to August.
Inventories crept up 3 percent in July from June and were 5 percent higher than July 2010. These increases seem to be in line with the increase in orders, so at this point, we are not seeing a build-up in inventories.
Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees increased 1 percent over June 2011, but were down 1 percent from July 2010. Last year, at this time, the number of employees was up 3 percent over July 2009.
Factory and warehouse payrolls were 3 percent lower than July 2010, when they were 17 percent higher than July 2009. Payrolls were down 23 percent from June, due primarily to the July 4th shutdown. It appears that most companies are managing employee levels.
National
Consumer Confidence
According to The Conference Board, the Consumer Confidence Index®, which had declined sharply in August, remained essentially unchanged in September. The Index now stands at 45.4 (1985=100), up slightly from 45.2 in August. The Present Situation Index decreased to 32.5 from 34.3. The Expectations Index edged up to 54.0 from 52.4 last month.
Lynn Franco, Director of The Conference Board Consumer Research Center said: “The pessimism that shrouded consumers last month has spilled over into September. Consumer expectations, which had plummeted in August, posted a marginal gain. However, consumers expressed greater concern about their expected earnings, a sign that does not bode well for spending. In addition, consumers’ assessment of current conditions declined for the fifth consecutive month, a sign that the economic environment remains weak.”
Consumers’ assessment of current conditions weakened further in September. Those claiming business conditions are “good” decreased to 11.7 percent from 14.1 percent, while those claiming business conditions are “bad” remained virtually unchanged at 40.4 percent. Consumers’ appraisal of employment conditions, however, was mixed. Those claiming jobs are “hard to get” increased to 50.0 percent from 48.5 percent, while those stating jobs are “plentiful” increased to 5.5 percent from 4.8 percent.
Consumers’ short-term outlook, which had deteriorated sharply last month, improved slightly in September. Those expecting business conditions to improve over the next six months decreased to 11.3 percent from 11.8 percent, while those expecting business conditions to worsen declined to 22.6 percent from 24.6 percent.
Leading Economic Indicators
According to The Conference Board, the Leading Economic Index® (LEI) for the U.S. increased for a fourth consecutive month in August, led by gains in real money supply and the yield spread. In the six-month period ending August 2011, the leading economic index increased 2.4 percent (about a 4.8 percent annual rate), slower than the growth of 4.0 percent (about an 8.0 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have been roughly balanced with the weaknesses in recent months.
The Conference Board Coincident Economic Index® (CEI) for the U.S., a measure of current economic activity, continued to increase as well in August. Between February and August 2011, the coincident economic index increased 0.8 percent (about a 1.6 percent annual rate), slower than the growth of 1.2 percent (about a 2.4 percent annual rate) between August 2010 and February 2011. However, the strengths among the coincident indicators have been very widespread, with all components increasing over the past six months. Meanwhile, real GDP increased at a 1.0 percent annual rate in the second quarter of 2011, after growing 0.4 percent annual rate in the first quarter.
Four of the ten indicators that make up The Conference Board LEI for the U.S. increased in August. The positive contributors – beginning with the largest positive contributor – were real money supply, the interest rate spread, building permits and the index of supplier deliveries (vendor performance). The negative contributors – beginning with the largest negative contributor – were stock prices, the index of consumer expectations, average weekly manufacturing hours, average weekly initial claims for unemployment insurance (inverted), manufacturers’ new orders for consumer goods and materials, and manufacturers’ new orders for nondefense capital goods.
Housing
Existing-Home Sales
According to the National Association of Realtors® (NAR), existing-home sales increased in August, even with ongoing tight credit and appraisal problems, along with regional disruptions created by Hurricane Irene. Monthly gains were seen in all regions.
Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 7.7 percent to a seasonally adjusted annual rate of 5.03 million in August from an upwardly revised 4.67 million in July, and are 18.6 percent higher than the 4.24 million unit level in August 2010.
Single-family home sales rose 8.5 percent to a seasonally adjusted annual rate of 4.47 million in August from 4.12 million in July, and are 20.2 percent above the 3.72 million pace in August 2010. The median existing single-family home price was $168,400 in August, which was 5.4 percent below a year ago.
Lawrence Yun, NAR chief economist, said there are some positive market fundamentals. “Some of the improvement in August may result from sales that were delayed in preceding months, but favorable affordability conditions and rising rents are underlying motivations,” he said. “Investors were more active in absorbing foreclosed properties. In additional to bargain hunting, some investors are in the market to hedge against higher inflation.”
Investors accounted for 22 percent of purchase activity in August, up from 18 percent in July and 21 percent in August 2010. First-time buyers purchased 32 percent of homes in August, unchanged from July; they were 31 percent in August 2010.
“We had some disruptions from Hurricane Irene in the closing weekend of August, when many sales normally are finalized, along the Eastern seaboard and in New England,” Yun said. “As a result, the Northeast saw the smallest sales gain in August, and some general impact is expected in September with widespread flooding from Tropical Storm Lee. Aberrations in housing data are possible over the next couple months as markets recover from disrupted closings and storm damage.”
Total housing inventory at the end of August fell 3.0 percent to 3.58 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, down from a 9.5-month supply in July.
Regionally, existing-home sales in the Northeast increased 2.7 percent in August and were 10.0 percent above a year ago. The median price in the Northeast was $244,100, which was 5.1 percent below August 2010.
Existing-home sales in the Midwest rose 3.8 percent in August and were 26.7 percent above August 2010. The median price in the Midwest was $141,700, down 3.5 percent from a year ago.
In the South, existing-home sales increased 5.4 percent in August and were 16.9 percent higher than a year ago. The median price in the South was $151,000, which was 0.8 percent below August 2010.
Existing-home sales in the West jumped 18.3 percent in August and were 20.6 percent higher than August 2010. The median price in the West was $189,400, down 13.0 percent from a year ago.
New Residential Sales
Sales of new single-family houses in August 2011 were at a seasonally adjusted annual rate of 295,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 2.3 percent below the revised July rate of 302,000, but was 6.1 percent above the August 2010 estimate of 278,000.
The median sales price of new houses sold in August 2011 was $209,100; the average sales price was $246,000. The seasonally adjusted estimate of new houses for sale at the end of August was 162,000. This represents a supply of 6.6 months at the current sales rate.
Sales were mixed across the regions as sales in August 2011 compared to August 2010, were down 36.7 percent in the Northeast, down 10.6 percent in the West, but were up 63.6 percent in the Midwest and up 9.3 percent in the South. We expect timing and weather had a lot to do with these results.
Housing Starts
According to the U.S. Census Bureau News, privately-owned housing starts in August were at a seasonally adjusted annual rate of 571,000. This was 5.0 percent below the revised July estimate of 601,000 and was 5.8 percent below the August 2010 rate of 606,000. Single-family housing starts in August were at a rate of 417,000; this was 1.4 percent below the revised July figure of 423,000.
Single-family starts (August 2011 to August 2010) were down 38 percent in the Midwest while the Northeast reported a 6 percent increase, and the South a 9 percent increase. The West was flat resulting in an overall decrease of 2.3 percent from last year.
Retail Sales
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $389.5 billion, virtually unchanged from the previous month and 7.2 percent above August 2010. Total sales for the June through August 2011 period were up 7.9 percent from the same period a year ago.
Retail trade sales were up 0.1 percent from July 2011, and 7.5 percent above last year. Gasoline stations sales were up 20.8 percent from August 2010 and nonstore retailers’ sales were up 10.4 percent from last year.
Sales on an adjusted basis at furniture and home furnishings stores were essentially flat with July but up slightly (0.2 percent) from August 2010.
Consumer Prices
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in August on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 3.8 percent before seasonal adjustment.
The seasonally adjusted increase in the all items index was broad-based, with continuing increases in the indexes for gasoline, food, shelter, and apparel. The gasoline index rose for the 12th time in the last 14 months and led to a 1.2 percent increase in the energy index, while the food index rose 0.5 percent, its largest increase since March.
The index for all items less food and energy increased 0.2 percent in August, the same increase as the previous month. Shelter and apparel were the biggest contributors, though the indexes for most of its major components posted increases, including used cars and trucks, medical care, household furnishings and operations, recreation, tobacco, and personal care. The new vehicles index, unchanged for the second month in a row, was an exception.
The 12-month change for all items less food and energy reached 2.0 percent for the first time since November 2008. The energy index has risen 18.4 percent over the last year, while the food index has increased 4.6 percent.
Employment
Nonfarm payroll employment was unchanged in August, and the unemployment rate held at 9.1 percent, according to the U.S. Bureau of Labor Statistics. Employment in most major industries changed little over the month. Health care continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota.
The number of unemployed persons, at 14.0 million, was essentially unchanged in August. The unemployment rate has shown little change since April.
Durable Goods Orders and Factory Shipments
The advance report for durable goods orders and shipments for August was not available at this time. The Census Bureau report for July indicated that orders for furniture and related products were up 7.8 percent compared to July 2010. Year-to-date orders in this category were up 8.3 percent, while shipments were up 7.6 percent.
Consumer Credit
According to the Federal Reserve Statistical Release, consumer credit increased at an annual rate of 6 percent in July 2011. Revolving credit decreased at an annual rate of 5¼ percent, while nonrevolving credit increased at an annual rate of 11¼ percent.
Summary
The increase in orders from July 2010 to July 2011 was nice at 8 percent, but as we indicated earlier, we believe at least a good portion of the increase related to price increases. In our conversations, due to price increases of raw materials as well as imported products, most people we talked to planned price increases (if not already in place) for the May to August period. So some of the increase could be related to those in effect and some could be related to retailers placing orders earlier in order to beat the price increases.
Consumer confidence, once again, did not improve much in September. We really have not seen much reason for consumers to feel better. News from Washington continues to depress most all of us and the global news is not much better, or even worse. Add to that the recent wild swings in the stock market and there is no wonder consumers do not have confidence. One bright spot has been the recent decline in gas prices, but that has not held in the past, so we doubt consumers are confident such prices will stick.
Unfortunately, with all the Presidential election rhetoric, we doubt there will be much to cheer about. Housing on the other hand seems to be bouncing along. Weather has had some impact, but the overall market seems somewhat improved. Even though houses are being sold at lower prices, they will still need furniture over the months following a purchase. So all is not bleak.
The other good news for the industry is that, while a 5 percent year-to-date increase in orders over last year, is not what everyone needs, it is at least comparing to pretty good results last year when we were up 9 percent over year-to-date 2009. So while business is tough, in light of the poor performance of the economy in general, moving forward is a good thing.
We will not have another report prior to the High Point Market. We hope all retailers will make an effort to come. The Market Authority, as well as the new owners of three of the major showroom buildings, have some good things planned. We are sure that other showrooms will do the same.
As we constantly remind, if customers come in the stores and see the same things, there is a good likelihood that if they didn’t buy before, they will probably not buy on second or third look. So come prepared to look for new things for your stores.
We hope you all have a great market in High Point.
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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.