Monthly Furniture Insights Report From Smith Leonard
Furniture Industry News Update -
Furniture World Magazine
Furniture Insights Monthly Results
According to our latest survey of residential furniture manufacturers and distributors, new orders in April were 13 percent lower than April 2011 and down 24 percent from March. The April over April decline we believe was affected by at least two factors. The first and likely largest was the timing of High Point Market dates.
In 2011, the Market dates were April 2 through April 7th. This year the dates were April 21 through April 26th. So last year’s April results likely included at least some orders written after Market, while this year’s would likely include mostly orders only written at Market. April 2011 orders were up 16 percent over April 2010, somewhat else affected by the early Market dates.
The second factor for the decline was some softening of business. Most of the Market talk was that business had slowed at retail in April (some mid-March) which was starting to impact orders in April.
We assume May results may also be skewed somewhat when comparing May to May 2011 but we will see. At least by the end of May, we will be able to better compare year-to-date orders on a more comparable basis.
With the drop in April, year-to-date orders are now up only 3 percent versus 8 percent reported through March with only about 56 percent of the participants reporting increased orders. Hopefully that will change next month.
Shipments and Backlogs
Shipments in April 2012 were up 7 percent over April a year ago as more shipments were made out of backlogs. Shipments were down from March but that is also somewhat normal, affected to some degree by Markets as dealers wait to order new things until they see Market products.
Shipments year-to-date were up 10 percent, down from 11 percent last month but still pretty good. We like shipment increases as that turns to cash.
Due to shipments exceeding backlogs for the month, backlogs fell 5 percent from March but remained 3 percent ahead of last year, despite the decline in orders.
Receivables and Inventories
Despite the increase in shipments, receivable levels remained even with April 2011 levels and fell 1 percent from March. We continue to be pleased with the control over receivables.
Inventories were up 6 percent from April 2011, up slightly from the March over March increase of 5 percent. Once we get orders sorted out next month, we think we will see that inventories remain in line with current business conditions.
Furniture Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees remained even with March levels and was up 6 percent over April 2011, the same as the March results. Payrolls were up 8 percent over last April but down 18 percent from March. Some of this decline from March may be due to the number of payrolls in each month.
Year-to-date, payrolls remained 10 percent above the first four months of 2011, in line with the increase in shipments.
The Conference Board Consumer Confidence Index®, which had declined in May, fell further in June. The Index now stands at 62.0 (1985=100), down from 64.4 in May. The Expectations Index declined to 72.3 from 77.3. The Present Situation Index, however, increased to 46.6 from 44.9 last month.
Lynn Franco, Director of Economic Indicators at The Conference Board said: “Consumer Confidence declined in June, the fourth consecutive moderate decline. Consumers were somewhat more positive about current conditions, but slightly more pessimistic about the short-term outlook. Income expectations, which had improved last month, declined in June. If this trend continues, spending may be restrained in the short-term. The improvement in the Present Situation Index, coupled with a moderate softening in consumer expectations, suggests there will be little change in the pace of economic activity in the near-term.”
Consumers’ assessment of current conditions improved slightly in June. Those claiming business conditions are “good” increased to 14.9 percent from 13.6 percent, however, those saying business conditions are “bad” increased to 35.1 percent from 34.7 percent.
Consumers’ appraisal of the job market was mixed. Those stating jobs are “hard to get” increased to 41.5 percent from 40.9 percent, while those claiming jobs are “plentiful” increased to 7.8 percent from 7.5 percent.
Consumers have grown less upbeat about the short-term outlook. The percentage of consumers anticipating business conditions to improve over the next six months declined to 15.5 percent from 16.6 percent, while those expecting business conditions will worsen increased to 16.2 percent from 12.9 percent. Consumers’ outlook for the labor market was mixed. Those anticipating more jobs in the months ahead declined to 14.1 percent from 15.4 percent, while those expecting fewer jobs also declined to 20.6 percent from 21.5 percent. The proportion of consumers expecting an increase in their incomes declined to 14.8 percent from 15.7 percent.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.3 percent in May to 95.8 (2004=100), following a 0.1 percent decline in April, and a 0.2 percent increase in March.
Ataman Ozyildirim, economist at The Conference Board said: “The LEI rose in May, reversing the slight decline in April. Weakness in the average workweek in manufacturing, stock prices and consumer expectations kept the LEI from rising further. Its six-month growth rate remains in expansionary territory and well above its growth at the end of 2011, pointing to a relatively low risk of a downturn in the second half of 2012.”
Ken Goldstein, economist at The Conference Board said: “Economic data in general reflect a U.S. economy that is growing modestly, neither losing nor gaining momentum. The result is more of a muddle through. Continued headwinds, both domestic and foreign, make further strengthening of the economy difficult.”
The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.2 percent in May to 104.3 (2004=100), following a 0.2 percent increase in April, and no change in March.
The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in May to 115.2 (2004 = 100), following a 0.6 percent increase in April, and a 0.3 percent increase in March.
Limited supplies of housing inventory held back existing-home sales in May, but sales maintained a strong lead over year-ago levels and home prices are on a sustained uptrend in all regions, according to the National Association of Realtors® (NAR).
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April, but are 9.6 percent above the 4.15 million-unit pace in May 2011.
Single-family home sales slipped 1.0 percent to a seasonally adjusted annual rate of 4.05 million in May from 4.09 million in April, but are 10.4 percent above the 3.67 million-unit level in May 2011. The median existing single-family home price was $182,900 in May, up 7.7 percent from a year ago.
Lawrence Yun, NAR chief economist, said inventory shortages in certain areas have been building all year. “The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring,” he said. “Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier.”
There are broad-based shortages of inventory in the lower price ranges in much of the country except the Northeast, and in the West supply is extremely tight in all price ranges except for the upper end. “Realtors® in Western states have been calling for an expedited process to get additional foreclosed properties onto the market because they have more buyers than available property,” Yun added. Widespread inventory shortages also are found in much of Florida.
The national median existing-home price for all housing types rose 7.9 percent to $182,600 in May from a year ago, the third consecutive month of year over year price gains. The last time there were three back-to-back price increases from the same month a year earlier was from March to May of 2006. “Some of the price gain results from a shrinking share of distressed homes in the sales mix,” Yun explained.
Regionally, existing-home sales in the Northeast fell 4.8 percent to an annual level of 590,000 in May but were 7.3 percent higher than May 2011. The median price in the Northeast was $250,700, up 3.8 percent from a year ago.
Existing-home sales in the Midwest rose 1.0 percent in May to a pace of 1.04 million and were 19.5 percent above a year ago. The median price in the Midwest was $147,700, up 6.4 percent from May 2011.
In the South, existing-home sales slipped 0.6 percent to an annual level of 1.78 million in May but were 9.2 percent higher than May 2011. The median price in the South was $159,700, up 7.8 percent from a year ago.
Existing-home sales in the West declined 3.4 percent to an annual pace of 1.14 million in May but were 3.6 percent above a year ago. The median price in the West was $233,900, up 13.4 percent from May 2011.
New Residential Sales
Sales of new single-family houses in May 2012 were at a seasonally adjusted annual rate of 369,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 7.6 percent above the revised April rate of 343,000 and was 19.8 percent above the May 2011 estimate of 308,000.
The median sales price of new houses sold in May 2012 was $234,500; the average sales price was $273,900. The seasonally adjusted estimate of new houses for sale at the end of May was 145,000. This represents a supply of 4.7 months at the current sales rate.
New houses sold in May (compared to May 2011) were up 127.8 percent in the Northeast; 2.4 percent in the Midwest; 16.6 percent in the South and 10.8 percent in the West.
According to the U.S. Census Bureau News Joint Release with the U.S. Department of Housing and Urban Development, privately-owned housing starts in May were at a seasonally adjusted annual rate of 708,000. This was 4.8 percent below the revised April estimate of 744,000 but was 28.5 percent above the May 2011 rate of 551,000.
Single-family housing starts in May were at a rate of 516,000; this was 3.2 percent above the revised April figure of 500,000. One unit starts were up from May 2011 18.4 percent in the Northeast; 20.8 percent in the Midwest; 25.2 percent in the South; and 37.0 percent in the West.
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $404.6 billion, a decrease of 0.2 percent from the previous month, but 5.3 percent above May 2011. Total sales for the March through May 2012 period were up 5.7 percent from the same period a year ago.
Retail trade sales were down 0.2 percent from April 2012, but 5.0 percent above last year. Nonstore retailers sales were up 12.4 percent from May 2011 and motor vehicles and parts dealers were up 10.0 percent from last year.
Sales at furniture and home furnishings stores, on an adjusted basis, were up 0.4 percent from April 2012 and up 8.7 percent from May 2011. Year-to-date, sales at these stores were up 9.4 percent from the same period a year ago.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.3 percent in May 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 1.7 percent before seasonal adjustment.
The gasoline index declined 6.8 percent in May, leading to a sharp decrease in the energy index and the decline in the all items index. The indexes for natural gas and fuel oil declined as well, though the electricity index increased. The food index was unchanged, with a slight decline in the index for food at home offsetting an increase in the food away from home index.
The index for all items less food and energy rose 0.2 percent in May; the third consecutive such increase. The indexes contributing to the increase were largely the same ones as in April: shelter, medical care, used cars and trucks, apparel, airline fares, and new vehicles. The indexes for household furnishings and operations and for tobacco declined.
The 12-month change in the index for all items was 1.7 percent in May; this figure has been declining steadily since its 3.9 percent recent peak in September 2011. The decline has been driven mostly by the energy index, which decreased 3.9 percent over the last 12 months. This was its first 12-month decline since October 2009. The 12-month change in the food index, which was 4.7 percent as recently as December, fell to 2.8 percent in May. The 12-month change in the index for all items less food and energy was 2.3 percent in May, the same figure as in April and March.
Nonfarm payroll employment changed little in May (+69,000), and the unemployment rate was essentially unchanged at 8.2 percent, according to the U.S. Bureau of Labor Statistics. Employment increased in health care, transportation and warehousing, and wholesale trade but declined in construction. Employment was little changed in most other major industries. The number of unemployed persons (12.7 million) changed little in May.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in May increased $2.3 billion or 1.1 percent to $217.2 billion, according to the U.S. Census Bureau. This increase, up following two consecutive monthly decreases, followed a 0.2 percent April decrease. Excluding transportation, new orders increased 0.4 percent. Excluding defense, new orders increased 0.7 percent.
Transportation equipment, up three of the last four months, had the largest increase, $1.7 billion or 2.7 percent to $63.1 billion. This was led by nondefense aircraft and parts, which increased $0.4 billion.
Shipments of manufactured durable goods in May, up five of the last six months, increased $1.5 billion or 0.7 percent to $224.1 billion. This followed a 0.7 percent April increase.
Transportation equipment, also up five of the last six months, had the largest increase, $1.0 billion or 1.6 percent to $65.1 billion. This followed a 3.5 percent April increase.
According to the report from the U.S. Census Bureau, shipments of furniture and related products were up 2.3 percent in April versus April 2011 and were up 3.9 percent year-to-date. Orders were down 2.0 percent for the month compared to last April and up 3.2 percent year-to-date.
As we normally see around High Point Market months, the change of Market dates can markedly change results of orders when comparing to the prior year. New orders were down 13 percent from last April according to our latest survey, but this decline was likely impacted by the change in dates. With last year’s April Market dates being April 2 to the 7th and this year’s dates being April 21 to 26th, most likely very few post Market orders are reflected in the current year results.
Year-to-date, new orders were up only 3 percent through April but that again was affected by Market order timing. We expect that by the time we report year-to-date through May, things will have smoothed out and we will have a better picture.
Shipments on the other hand remained very positive with an April over April 2011 increase of 7 percent and year-to-date increase of 10 percent. This compared to a 3 percent increase year-to-date comparing 2011 to 2010.
We do believe though that business at retail seemed to slow somewhat either in mid-March or early April. We heard much of that at Market and since then business at retail has seemed a bit sluggish.
Still, according to the U.S. Census Bureau reports, sales at furniture and home furnishings stores were up 8.7 percent in May compared to May 2011 and up 9.4 percent year-to-date. This increase in year-to-date sales was the second highest of the 13 categories covered in the report. Only sales at building material and garden equipment and supplies were up more than furniture and home furnishings, with an 11.1 percent increase. Of course, last year at this time, sales were up at furniture and home furnishings stores only 0.4 percent and were near the bottom of the 13 categories.
Based on our conversations with others in the industry, the furniture industry seems to be moving along about like the economy in general. Business is not as good as we would like, but it really doesn’t seem too bad either.
We really are not too sure what to expect the rest of the year. Some economists seem to be all doom and gloom, yet others are more positive. Consumers are also not sure what to do. Housing prices seem to be recovering somewhat, yet jobs are not being created at strong levels. And of course the election rhetoric will certainly not help consumer attitudes.
But American people seem to bounce back over time. Let’s hope that time starts to come sooner than later.
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