Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

Furniture World Magazine

New Furniture Orders According to our recent survey of residential furniture manufacturers and distributors, new orders in February 2007 were 4 percent below February 2006 levels following a 7 percent decline in January and a 6 percent decline in December, both compared to the prior year results. February orders were 8 percent higher than January orders. While somewhat typical for new orders in February to be higher than January, the 8 percent improvement was, at least, positive. Those reporting an increase in orders over last year declined from 45 percent of the participants in January to 39 percent in February. Year-to-date, new orders have decreased 5 percent compared to the first two months of last year. One thing to remember when looking at these comparisons, the industry started last year much stronger. For the first two months of 2006, new orders were up 6 percent and February orders alone were up 7 percent. Shipments and Backlogs Material discussed is meant to provide general information and should not be acted on without obtaining professional advice appropriately tailored to your individual needs. Furniture Insights® is a registered trademark of Smith Leonard PLLC. February 2007 shipments declined 3 percent from February 2006 after a 7 percent decline in January and a 5 percent decline in December. Shipments were 13 percent higher than January. This 13 percent increase over January compared to a 9 percent increase in February 2o06 over January 2006. For the first two months of 2007, shipments were 5 percent lower than the first two months of last year. These results in 2007 compared to a 1 percent increase in the first two months of 2006 versus 2005. Backlogs in February were 8 percent lower than February 2006 in line with a 7 percent decline reported last month. Backlogs were 4 percent higher in February compared to January when backlogs were up 7 percent over December, so it appears that backlogs are building back up somewhat. Some of this may result from the timing of shipments of imports. Receivables and Inventories Receivable levels dropped 4 percent in February compared to February 2006, in line with the decrease in shipments of 3 percent for the month and 5 percent year-to-date. Receivables increased 6 percent over January 2007 levels, but again in line, in fact better when compared to the 13 percent increase in shipments. Inventories were 2 percent lower than last year and 1 percent higher than January. With orders increasing, the increase in inventories over January seems to be in line. Factory Employees and Payroll The number of factory employees declined 13 percent from last February, higher than the 11 percent decline reported in January. The number of factory employees declined 2 percent from January. In February of 2006, the number of factory employees were down 5 percent compared to February 2005. Factory payrolls were down 7 percent from February 2006 but were up 2 percent over January, reflecting somewhat improved conditions over January. Year-to-date, factory payrolls were 5 percent lower than last year — in line with orders and shipments. National Consumer Confidence Consumer Confidence which fell in March, declined again in April. The index in April was 104.0 down from 108.2 in March. The Present Situation Index fell to 131.3 from 138.5 in March. The Expecations Index declined to 85.8 from 87.9. Lynn Franco, Director of The Conference Board Consumer Research Center said, “Unlike the decline in March, which was solely the result of apprehension about the short-term expectations. The decline in the Present Situation Index — the first decline in six months — warrants monitoring in the months ahead, as further declines would suggest a softening in growth.” Consumer’s appraisal of current-day conditions was less positive in April. Those claiming conditions are “good’ declined to 26.5 percent from 28.6 percent. Those saying conditions are “bad” edged up to 15.0 percent from 14.5 percent. Consumers were also less upbeat about labor market conditions. Those saying jobs are “hard to get” rose to 20.4 percent from 18.9 percent. Those claiming jobs are “plentiful” decreased to 27.8 percent from 30.3 percent in March. Housing After rising three consecutive months, total existing home sales fell 8.4 percent to a seasonally adjusted rate of 6.12 million units. March sales were 11.3 percent below last year’s March results. David Lereah, NAR’s chief economist, expected the drop. “For the last couple months we’ve been expecting a weather ‘hit’ on home sales finalized in March, but looking at overall activity in the first quarter we see that existing home sales averaged 6.41 million — a figure that is moderately higher than the sales pace during the second half of 2006,” he said. “We also may be seeing some losses as a result of the subprime fallout. However, this is masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers. “It’s too early to measure a significant impact from tighter lending standards, which should moderately dampen activity, but we’re still looking for existing-home sales to gradually improve during the last half of 2007,” Lereah said. Single family home sales dropped 9.5 percent to a seasonally adjusted rate of 5.32 million and were 11.9 percent lower than the same period last year. The decline was recorded pretty consistently in all regions of the country. The median existing single-family home price was $215,300 in March, down 0.9 percent from a year earlier. Sales of new one-family houses in March increased 2.6 percent over February but were 23.5 percent lower than the March 2006 estimate. It was reported that there is a 7.8 months supply at the current rate. Employment Nonfarm payroll employment rose by 180,000 in March and the unemployment rate was essentially unchanged at 4.4 percent according to the Bureau of Labor Statistics. Employment in March increased in construction, retail trade and health care. The number of manufacturing jobs continued to trend down. The unemployment rate has ranged from 4.4 to 4.6 percent since September 2006. Summary As we discussed last month, the results for February were in line with expectations, though certainly not very impressive. We continue to hear that business is showing some signs of perking up but most of that is in certain segments and not widespread. Consumer Confidence seems to be the real key for the economy. As with home sales, high gas prices, that continue to rise almost every day, are affecting consumers and their wallets. We are not certain when this trend will change as Americans continue to drive almost as much when gas prices are high. We hope that orders since the High Point Market continue to improve. We saw some real excitement in some showrooms. We hope that the excitement felt by some at the Market turned in to orders in the weeks since Market. 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.