Monthly Results
New Orders
New orders in October 2011 were 11 percent higher than October orders a year ago, according to our latest survey of residential furniture manufacturers and distributors. New orders were 5 percent lower than September 2011 orders.
While the 11 percent increase was a good one, it compared to October 2010 when orders were down 5 percent from October 2009. The 2011 order rate was only 6 percent higher than October 2009, but still not bad.
New orders in October were up for 53 percent of the participants with several others off only 1 to 2 percent.
Year-to-date, new orders are up 7 percent over the first ten months of the year, up from a 6 percent increase reported last month. Approximately 62 percent of the participants are now reporting increased orders year-to-date, up from 60 percent last month. Last year at this time, new orders were up 5 percent over the first ten months of 2009.
Shipments and Backlogs
Shipments in October were up 6 percent over October 2010, when they were 3 percent above October 2009, but fell 6 percent from September levels. Shipments increased for 50 percent of the participants in October.
Year-to-date, shipments are 3 percent ahead of 2010, when they were 8 percent ahead of the first ten months of 2009.
Approximately 58 percent of the participants have reported increased shipments for the year, the same as reported through September.
Backlogs were up 16 percent over October 2010 as orders exceeded shipments again (up from an increase of 13 percent reported last month).
Receivables and Inventories
In spite of the increase in shipments compared to last October, receivable levels fell 1 percent from a year ago. Receivables were even with September levels though shipments were down 6 percent from September. Overall though receivables have seemed to be in pretty good shape, though from month to month, there can be timing issues.
Inventories were up 1 percent from September, making them 3 percent higher than last year at this time. With orders up pretty nicely, the increase in inventories seems reasonable.
Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees was even with September levels and up 1 percent from last October. September employee levels were down 1 percent from last September. Overall, it appears that employee levels remain flat for the most part.
Factory and warehouse payrolls on the other hand were up 10 percent over October 2010. It appears that employees were getting more hours this year than last. Last year at this time, we had begun to see business slowing down again, so we suspect hours were cut in many cases. We have also heard about some minor increases in wages per hour after several years of either flat or cut pay rates.
National
Consumer Confidence
The Conference Board Consumer Confidence Index®, which had improved in November, increased further in December. The Index now stands at 64.5 (1985=100), up from 55.2 in November. The Present Situation Index increased to 46.7 from 38.3. The Expectations Index rose to 76.4 from 66.4.
Lynn Franco, Director of The Conference Board Consumer Research Center said: “After two months of considerable gains, the Consumer Confidence Index is now back to levels seen last spring (April 2011, 66.0). Consumers’ assessment of current business and labor market conditions improved again.
Looking ahead, consumers are more optimistic that business conditions, employment prospects, and their financial situations will continue to get better. While consumers are ending the year in a somewhat more upbeat mood, it is too soon to tell if this is a rebound from earlier declines or a sustainable shift in attitudes.”
Consumers’ assessment of current conditions improved in December. Those stating business conditions are “good” increased to 16.6 percent from 13.9 percent, while those stating business conditions are “bad” declined to 33.9 percent from 38.0 percent. Consumers’ assessment of the job market was also more positive. Those claiming jobs are “plentiful” increased to 6.7 percent from 5.6 percent, while those claiming jobs are “hard to get” decreased to 41.8 percent from 43.0 percent.
Consumers’ short-term outlook also improved in December. The proportion of consumers expecting business conditions to improve over the next six months increased to 16.7 percent from 13.7 percent, while those expecting business conditions will worsen declined to 13.4 percent from 16.1 percent.
Thomson Reuters/University of Michigan Surveys of Consumers
According to the Surveys of Consumers Thomson Reuters/University of Michigan report, consumer confidence continued to improve in December for the fourth consecutive month. The December gain primarily reflected more positive expectation for the economy in 2012. Importantly, consumers more frequently reported hearing news about employment gains in the December survey. Unfortunately, consumers did not assess their personal finances more positively, with recent income declines being reported twice as frequently as income increases. While the December survey recorded the most optimistic expectations for the national economy since August, income changes were reported to be the worst since last Spring. Assuming the payroll tax cut will be passed and made retroactive to the start of 2012, the data indicate that inflation-adjusted personal consumption expenditures will rise by 1.8 percent during 2012.
The report said that the improvement in the economic outlook was large, but still left the overall prospects for the economy at low levels. Good times economically were expected in 2012 by 29 percent in December, up from 19 percent in November and the recent low of 14 percent in August. While more consumers heard news of employment gains in December, they didn’t expect that those gains would have much impact on the national unemployment rate in the months ahead.
The majority of consumers reported that their finances worsened during 2011, and just one-in-four households anticipated that their financial situation would improve in 2012. Only one-in-ten families anticipated an increase in the living standards during 2012. These assessments have been largely unchanged over the past two years.
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 third quarter of 2011 (that is, from the second quarter to the third quarter), according to the “third” 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 nonresidential fixed investment, personal consumption expenditures (PCE), 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 0.22 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 0.12 percentage point to the third-quarter change in real GDP after subtracting 0.10 percentage point from the second-quarter change.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.5 percent in November to 118.0 (2004=100), following a 0.9 percent increase in October, and a 0.1 percent increase in September.
Ataman Ozyildirim, economist at The Conference Board said: “November’s increase in the LEI for the U.S. was widespread among the leading indicators and continues to suggest that the risk of an economic downturn in the near term has receded. Interest rate spread and housing permits made the largest contributions to the LEI this month, overcoming a falling average workweek in manufacturing, which reversed its October gain. The CEI also rose on improving employment and personal income although industrial production fell in November.”
Ken Goldstein, economist at The Conference Board said: “The LEI is pointing to continued growth this winter, possibly even gaining momentum by spring. For the second month in a row, building permits made a relatively strong contribution and there is a chance that the long decline in housing is finally slowing. However, this somewhat positive outlook for the domestic economy is at odds with a global economy that appears to be losing steam. In particular, a deeper-than-expected recession in Europe could easily derail the outlook for the U.S. economy.”
Housing
Existing-Home Sales
Existing-home sales rose again in November and remain above a year ago, according to the National Association of Realtors® (NAR). Also released were periodic benchmark revisions with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners.
Although rebenchmarking resulted in lower adjustments to several years of home sales data, the month-to-month characterization of market conditions did not change. There were no changes to home prices or month’s supply.
The latest monthly data shows total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010.
Lawrence Yun, NAR chief economist, said more people are taking advantage of the buyer’s market. “Sales reached the highest mark in 10 months and are 34 percent above the cyclical low point in mid-2010 – a genuine sustained sales recovery appears to be developing,” he said. “We’ve seen healthy gains in contract activity, so it looks like more people are realizing the great opportunity that exists in today’s market for buyers with long-term plans.”
An elevated level of contract failures continues to hold back a broader sales recovery. Contract failures were reported by 33 percent of NAR members in November, unchanged from October but notably above a year ago when it was 9 percent.
Total housing inventory at the end of November fell 5.8 percent to 2.58 million existing homes available for sale, which represents a 7.0-month supply at the current sales pace, down from a 7.7-month supply in October. “Since setting a record of 4.04 million in July 2007, inventories have trended down and supplies are moving close to price stabilization levels,” Yun said.
The national median existing-home price for all housing types was $164,200 in November, down 3.5 percent from a year ago. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 29 percent of sales in November (19 percent were foreclosures and 10 percent were short sales), compared with 28 percent in October and 33 percent in November 2010.
Single-family home sales rose 4.5 percent to a seasonally adjusted annual rate of 3.95 million in November from 3.78 million in October, and were 12.9 percent above the 3.50 million-unit level in November 2010. The median existing single-family home price was $164,100 in November, down 4.0 percent from a year ago.
Regionally, existing-home sales in the Northeast jumped 9.8 percent to an annual pace of 560,000 in November and were 7.7 percent above a year ago. The median price in the Northeast was $240,200, which is 0.1 percent below November 2010.
Existing-home sales in the Midwest rose 4.3 percent in November to a level of 960,000 and were 15.7 percent higher than November 2010. The median price in the Midwest was $133,400, down 4.0 percent from a year ago.
In the South, existing-home sales increased 2.4 percent to an annual pace of 1.74 million in November and were 12.3 percent above a year ago. The median price in the South was $143,300, which was 2.1 percent below November 2010.
Existing-home sales in the West rose 3.6 percent to an annual level of 1.16 million in November and were 11.5 percent higher than November 2010. The median price in the West was $195,300, down 8.4 percent below a year ago.
New Residential Sales
Sales of new single-family houses in November 2011 were at a seasonally adjusted annual rate of 315,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 1.6 percent above the revised October rate of 310,000 and was 9.8 percent above the November 2010 estimate of 287,000.
The median sales price of new houses sold in November 2011 was $214,100; the average sales price was $242,900. The seasonally adjusted estimate of new houses for sale at the end of November was 158,000. This represents a supply of 6.0 months at the current sales rate.
Sales for November versus October were up 7.5 percent in the Midwest and up 12.9 percent in the South, while sales were off 26.3 percent in the Northeast and off 16.9 percent in the West.
Housing Starts
According to the U.S. Census Bureau, privately-owned housing starts in November were at a seasonally adjusted annual rate of 685,000. This was 9.3 percent above the revised October estimate of 627,000, but was 24.3 percent above the November 2010 rate of 551,000. Single-family housing starts in November were at a rate of 447,000; this was 2.3 percent above the revised October figure of 437,000. Single-family starts were up 35.7 percent in the Northeast and up 10.7 percent in the West. Starts were down 14.5 percent in the Midwest and down 1.3 percent in the South.
Retail Sales
The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $399.3 billion, an increase of 0.2 percent from the previous month and 6.7 percent above November 2010. Total sales for the September through November 2011 period were up 7.4 percent from the same period a year ago.
Retail trade sales were up 0.3 percent from October 2011, and 6.8 percent above last year. Nonstore retailers sales were up 13.9 percent from November 2010 and gasoline stations sales were up 12.9 percent from last year.
Sales on an adjusted basis in furniture and home furnishings stores were up 0.4 percent from October and up 4.4 percent from November 2010. Year-to-date, sales at these stores were up 1.5 percent.
Consumer Prices
The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis, according to the report from the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.
The energy index declined for the second month in a row and offset increases in the indexes for food and all items less food and energy. As in October, the gasoline index fell sharply and the index for household energy declined as well. The food index rose slightly in November, though the index for food at home declined as four of the six major grocery store food group indexes fell.
The index for all items less food and energy increased 0.2 percent in November following increases of 0.1 percent in each of the prior two months. The indexes for shelter, medical care, apparel, and personal care all rose. These increases more than offset declines in the indexes for new vehicles and used cars and trucks.
Employment
The unemployment rate fell by 0.4 percentage point to 8.6 percent in November, and nonfarm payroll employment rose by 120,000, according to the U.S. Bureau of Labor Statistics. Employment continued to trend up in retail trade, leisure and hospitality, professional and business services, and health care. Government employment continued to trend down.
From April through October, the rate held in a narrow range from 9.0 to 9.2 percent. The number of unemployed persons, at 13.3 million, was down by 594,000 in November. The labor force, which is the sum of the unemployed and employed, was down by a little more than half that amount.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in November increased $7.5 billion or 3.8 percent to $207.0 billion, according to the U.S. Census Bureau. This increase, up four of the last five months, followed a slight October increase. Excluding transportation, new orders increased 0.3 percent. Excluding defense, new orders increased 3.7 percent.
Transportation equipment, up following two consecutive monthly decreases, had the largest increase, $7.0 billion or 14.7 percent to $54.4 billion.
Shipments of manufactured durable goods in November, down two of the last three months, decreased $0.8 billion or 0.4 percent to $202.8 billion. This followed a 1.5 percent October increase.
For the furniture and related products category, October 2011 new orders were up 5.1 percent over October 2010 and were up 6.7 percent year-to-date. Shipments in this category were up 4.4 percent over October 2010 and were up 7.2 percent year-to-date.
Summary
The results for October were once again positive on an overall basis for our participants. The 11 percent increase in orders versus October 2010 was a bit affected by the decline in orders reported last year of 5 percent versus 2009. Still, the October levels were almost 6 percent higher than 2009.
The High Point Market dates typically have some impact on our monthly order statistics. The 2011 market was a week later than 2010 with market officially over October 27. That would typically mean that many market orders were not written until November. But as we have noted before, we heard much more about order writing at market than we have heard in a long time. So we may not see the lag in order writing that we have seen at some recent markets.
Still, year-to-date orders are up 7 percent over the first ten months of 2010. This compares to a 5 percent increase reported for the year-to-date last year. We have mentioned before that some of the increase probably reflects price increases put in over late spring and summer. And some could be reflective of ordering before price increases. Yet, the increase in October was the 7 of the last 8 months where orders were up over the same month a year ago (May orders were flat). We believe this is a good trend.
Overall though, some of the national reports this month were encouraging. Consumer confidence has continued to inch up in spite of the negative political news we hear every day, along with the bad news we hear about the U.S. economy and the economic troubles around the world.
Housing is also starting to show promise. While prices are still down, sales and construction is improving. According to the NAR, if the tightness in lending would ease somewhat, we would see even more improvement.
Jobs are still a major issue, but if we can see housing construction continue to improve, the job market would be helped tremendously.
We guess it really all depends on what news you read or hear about on a daily basis. But we do feel that the furniture industry as a whole is improving, admittedly slower than we would like.
We wish you all a very happy and prosperous 2012. It will be challenging, we are sure, but hopefully consumer confidence continues to improve, which will go a long way towards benefits to the industry.