Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

Monthly Results

New Orders
New orders in August 2011 were 9 percent higher than August 2010 orders, according to our most recent survey of residential furniture manufacturers and distributors. New orders in August were 6 percent higher than July 2011 orders.

August 2010 orders were only 1 percent higher than August 2009. We remember that orders had been fairly strong in the first half of 2010, then started to taper off especially in August of 2010.

Some 57 percent of the participants reported increased orders in August, up from 45 percent of the participants last month. Year-to-date, new orders are up 6 percent (actually 5.5 percent) over last year. At this time last year, new orders were up 8 percent over 2009. Approximately 56 percent of the participants have reported increased orders over last year.
We continue to believe that the results for July and August were partially reflective of some price increases.

Shipments and Backlogs 
Shipments in August were 3 percent higher than August 2010 and were 18 percent higher than July. The increase over July is normal due to the time off for most companies for the Fourth of July holiday. Approximately 52 percent of the participants reported increased shipments for the month.

Year-to-date, shipments were 3 percent ahead of 2010 results when they were 9 percent ahead of the same period in 2009. Approximately 60 percent of the participants have reported increased shipments year-to-date with several participants only down a few points from last year.

With shipments slightly exceeding orders, backlogs fell 2 percent from July but were a healthy 8 percent higher than last year at this time.

Receivables and Inventories
Receivables in August were 3 percent lower than August 2010 in spite of the 3 percent increase in shipments. Receivables were 5 percent higher than July compared to an 18 percent increase in shipments, but we believe this may have been a timing issue.

Inventories were 2 percent higher than last August, down from a 5 percent increase reported last month. Inventories were 2 percent higher than July 2011 levels. Considering the effects of direct shipments, the increase in inventories seems to be in line with current business conditions, at least on an overall basis.

Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees was unchanged from July and was down 1 percent from August 2010 levels. While these do not show much change, there are several that are significantly up in employees while others are down more significantly. Most of the increases were with pure manufacturers.

Factory and warehouse payrolls were 6 percent higher than August and up 2 percent year-to-date. Again, some of this is reflective of manufacturers’ wages up with more payrolls than the pure importers’ wages.

National

Consumer Confidence
The Conference Board Consumer Confidence Index®, which had slightly improved in September, declined in October. The Index now stands at 39.8 (1985=100), down from 46.4 in September. The Present Situation Index decreased to 26.3 from 33.3. The Expectations Index declined to 48.7 from 55.1 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence is now back to levels last seen during the 2008-2009 recession. Consumer expectations, which had improved in September, gave back all of the gain and then some, as concerns about business conditions, the labor market and income prospects increased. Consumers’ assessment of present-day conditions did not fare any better. The Present Situation Index posted its sixth consecutive monthly decline, as pessimism about the current economic environment continues to grow.”

Consumers’ appraisal of present-day conditions deteriorated further in October. Those claiming business conditions are “bad” increased to 43.7 percent from 40.5 percent, while those claiming business conditions are “good” decreased to 11.0 percent from 12.1 percent. Consumers’ assessment of the labor market was also less favorable. Those claiming jobs are “plentiful” decreased to 3.4 percent from 5.6, however, those saying jobs are “hard to get” decreased to 47.1 percent from 49.4 percent.
 
Consumers’ short-term outlook, which had improved last month, reversed course in October. Those expecting business conditions to improve over the next six months decreased to 9.1 percent from 11.8 percent, while those expecting business conditions to worsen edged down to 21.5 percent from 21.9 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 2.5 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, and federal government spending 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, increased.

Final sales of computers added 0.21 percentage point to the third-quarter change in real GDP after adding 0.07 percentage point to the second-quarter change. Motor vehicle output added 0.07 percentage point to the third-quarter change in real GDP after subtracting 0.10 percentage point from the second-quarter change.

Real personal consumption expendi-tures increased 2.4 percent in the third quarter, compared with an increase of 0.7 percent in the second. Durable goods increased 4.1 percent, in contrast to a decrease of 5.3 percent. Nondurable goods increased 0.2 percent, the same increase as in the second. Services increased 3.0 percent, compared with an increase of 1.9 percent.

Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. increased for the fifth consecutive month in September. Positive contributions from the yield spread, real money supply and index of supplier deliveries offset the large negative contribution from building permits. In the six-month period ending September 2011, the leading economic index increased 1.8 percent (about a 3.7 percent annual rate), slower than the growth of 4.0 percent (about an 8.2 percent annual rate) during the previous six months. In addition, the weaknesses among the leading indicators became more widespread.

The Conference Board Coincident Economic Index® (CEI) for the U.S., a measure of current economic activity, edged up in September. The index rose 0.4 percent (about a 0.8 percent annual rate) between March 2011 and September 2011, much slower than the growth of 1.5 percent (about a 3.0 percent annual rate) for the previous six months. However, the strengths among the coincident indicators have remained very widespread, with all components advancing over the past six months. The lagging economic index continued to increase almost at the same pace as the CEI, and the coincident-to-lagging ratio remained unchanged. Real GDP expanded at a 1.3 percent annual rate in the second quarter of the year, after increasing 0.4 percent annual rate in the first quarter.

Five of the ten indicators that make up The Conference Board LEI for the U.S. increased in September. The positive contributors – beginning with the largest positive contributor – were interest rate spread, real money supply, index of supplier deliveries (vendor performance), index of consumer expectations, and manufacturers’ new orders for consumer goods and materials. The negative contributors – beginning with the largest negative contributor – were building permits, manufacturers’ new orders for nondefense capital goods, stock prices, and average weekly initial claims for unemployment insurance (inverted). The average weekly manufacturing hours held steady in September.

Housing

Existing-Home Sales
Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of Realtors® (NAR).
Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010.

Lawrence Yun, NAR chief economist, said the market has been stable although at low levels, and there is plenty of room for improvement. “Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he said. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable. “This speaks to an unfulfilled demand.”

Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago.

Contract failures were reported by 18 percent of NAR members in September, unchanged from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

Regionally, existing-home sales in the Northeast rose 2.6 percent to an annual level of 790,000 in September and were 6.8 percent above a year ago. The median price in the Northeast was $229,400, down 3.3 percent in September 2010.

Existing-home sales in the Midwest slipped 0.9 percent in September to a pace of 1.09 million but were 17.2 percent higher than September 2010. The median price in the Midwest was $137,400, which is 1.4 percent below a year ago.
In the South, existing-home sales declined 2.6 percent to an annual level of 1.89 million in

September but were 10.5 percent above a year ago. The median price in the South was $144,400, down 3.0 percent from September 2010.

Existing-home sales in the West fell 8.8 percent to an annual pace of 1.14 million in September but were 10.7 percent higher than September 2010. The median price in the West was $207,400, which is 4.5 percent below a year ago.

New Residential Sales
Sales of new single-family houses in September 2011 were at a seasonally adjusted annual rate of 313,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 5.7 percent above the revised August rate of 296,000, but was 0.9 percent below the September 2010 estimate of 316,000.
The median sales price of new houses sold in September 2011 was $204,400; the average sales price was $243,900. The seasonally adjusted estimate of new houses for sale at the end of September was 163,000. This represents a supply of 6.2 months at the current sales rate.
Compared to August 2011, sales of new houses in September were up 11.2 percent in the South and up 9.7 percent in the West, but were off 4.2 percent in the Northeast and 12.2 percent in the Midwest.

Housing Starts
According to the U.S. Census Bureau News, privately-owned housing starts in September were at a seasonally adjusted annual rate of 658,000. This was 15.0 percent above the revised August estimate of 572,000 and was 10.2 percent above the September 2010 rate of 597,000. Single-family housing starts in September were at a rate of 425,000; this was 1.7 percent above the revised August figure of 418,000. Single-family starts in September 2011 versus August 2011 were up 20.6 percent in the Northeast and up 46.0 percent in the Midwest. The West was flat and the South declined 9.4 percent.
 
Retail Sales
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $395.5 billion, an increase of 1.1 percent from the previous month and 7.9 percent above September 2010. Total sales for the July through September 2011 period were up 8.0 percent from the same period a year ago. The July to August 2011 percent change was revised from virtually unchanged to +0.3 percent.

Retail trade sales were up 1.1 percent from August 2011, and 8.1 percent above last year. Gasoline stations sales were up 20.3 percent from September 2010 and nonstore retailers’ sales were up 10.1 percent from last year.

According to this report, sales on an adjusted basis at furniture and home furnishings stores were 3.2 percent higher in September than September 2010 and 1.1 percent higher than August 2011. Year-to-date, sales at these stores are up 1.0 percent. This category continues to rank next to last of all categories in percentage increase, trailed only by electronics and appliance stores.

Consumer Prices
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in September on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 3.9 percent before seasonal adjustment.
Increases in energy and food indexes were the main cause of the seasonally adjusted all items increase. The gasoline index continued to rise, and indexes for electricity and natural gas increased as well. Broad increases in food indexes also continued in September, with the food at home index rising 0.6 percent for the third month in a row and no major grocery store food group indexes declining.

The index for all items less food and energy increased 0.1 percent in September, its smallest increase since March. The index for apparel declined in September after a series of sharp increases, and the indexes for used cars and recreation turned down as well. The indexes for new vehicles and household furnishings and operations were both flat. The shelter index rose, but posted its smallest increase since April, while the indexes for medical care, airline fares, and tobacco all increased.

The 12-month change for all items less food and energy remained at 2.0 percent for the second straight month. The energy index has risen 19.3 percent over the last year, while the food index has increased 4.7 percent.

Employment
Nonfarm payroll employment edged up by 103,000 in September, and the unemployment rate held at 9.1 percent, according to the U.S. Bureau of Labor Statistics report. The increase in employment partially reflected the return to payrolls of about 45,000 tele-communications workers who had been on strike in August. In September, job gains occurred in professional and business services, health care, and construction. Government employment continued to trend down.

The number of unemployed persons, at 14.0 million, was essentially unchanged in September. Since April, the unemploy-ment rate has held in a narrow range from 9.0 to 9.2 percent.

Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in September decreased $1.5 billion or 0.8 percent to $200.3 billion, according to the U.S. Census Bureau. This decrease, down three of the last four months, followed a 0.1 percent August decrease. Excluding transportation, new orders increased 1.7 percent. Excluding defense, new orders decreased 1.1 percent.

Shipments of manufactured durable goods in September, down following four consecutive monthly increases, decreased $1.4 billion or 0.7 percent to $200.1 billion. This followed a 0.1 percent August increase.

According to the U.S. Census Bureau report, shipments in August of furniture and related products were up 8.4 percent over August 2010 and are 7.7 percent ahead of last year for the eight months. Orders in this category were up 4.2 percent over last August and up 7.8 percent year-to-date.
 
Summary
Based on some reports we had heard, the August results for new orders were better than we expected. The 9 percent increase in orders puts the participants up to a 5.5 percent increase for the year compared to an 8 percent increase at this time last year. Shipments also continue to improve with a 3 percent increase showing for year-to-date up from a 9 percent increase at this time last year.

As has been the case, participation in the growth has not been across the board as there are participants that are up very nicely versus some who continue to show sharp declines, some well into double digits.

We just finished the October High Point Furniture Market and by all accounts so far, the results were positive. Our take was that expectations were not all that high, but we seemed to have exceeded them in most cases. As one market person described it, if you base it on a good, better or best market, his results would be in the better category.

Others said the market was one of the best in some years. We have lived for the last several markets with some orders and lots of commitments. This market we heard more actual order writing than we have heard in some time. We think that added to the “mood” of market.

Attendance? We don’t know yet. Many said attendance was off, but several said theirs was up and up nicely. The Market Authority said bus ridership and international attendance was up signif-icantly along with housing booked through the Authority. Some of the downtown parking lots were full for several days, the first time in some years. We will have to wait to see what information is reported by the buildings owners.

Overall though, we would have to say the market was very positive. Maybe not like the old days, but we are not sure the “old” days will ever come again as they were.

We have said this over and over again, if you are in the retail furniture business for your livelihood, we cannot understand why you would not come to market. Yes, it takes time and some dollars, but it seems to us you have to at least attend one or more markets a year, at least here or in Vegas or somewhere. Some say they rely on their sales reps, but no offense to any salesperson, they cannot show the depth and breadth of product that is shown at markets.

On one more positive note for me, not only did we get a couple of good leads for new business for our firm, and see most all of our furniture clients, as well as many others in the industry, I got a hug from Kathy Ireland at the Hall of Fame Dinner. Made my market.