Monthly Furniture Insights Report From Smith Leonard
Furniture Industry News Update -
Furniture Insights Monthly Results
New Furniture Orders
As we expected in last month’s issue of Furniture Insights, new orders in May improved significantly over April orders according to our recent survey of residential furniture manufacturers and distributors. As we mentioned last month, the timing of the High Point Market affected orders in April as the Market was held late in April 2012 versus early in 2011 so most likely some Market orders were not booked until May 2012.
All of this led to an increase of 10 percent comparing May 2012 to May 2011 and an increase of 17 percent over April 2012 orders. Some 69 percent of the participants reported increased orders over last year.
For the first four months of 2012, orders were 4 percent higher than the same period a year ago, up from 3 percent reported last month. But the 10 percent increase in May (after the 13 percent decline last month) was not enough to bring the year-to-date increase back up to the 8 percent increase reported in the first quarter.
Similar to last month, on a year-to-date basis, orders were up over last year for approximately 56 percent of the participants, so clearly all are not having an “up” year compared to last year.
Furniture Shipments and Backlogs
Shipments for May were 7 percent higher than May 2011 and 8 percent higher than April. This increase reduced year-to-date shipments from an increase of 10 percent reported last month to a 9 percent increase for the first 5 months of the year.
Shipments were up for 72 percent of the participants year-to-date with several participants reporting a decline of 5 percent or less.
Backlogs were actually down slightly (less than ½ of a percent) as shipments exceeded orders for the month. Backlogs were up 5 percent over May of 2011, up from 3 percent last month, due to the low order rate in April. In March, backlogs were 18 percent higher than March 2011, so clearly the continued increase in shipments compared to order rates is bringing backlogs down significantly.
Receivables and Inventories
Receivables increased 1 percent over last year in spite of the 7 percent increase in shipments. Receivables were 2 percent higher than April even though shipments were 8 percent higher in May versus April. As we have said the last several months, receivables really appear to be in pretty good shape, so kudos to the credit departments.
Inventories increased 3 percent over last month and were 8 percent higher than May 2011. This compared to a 6 percent increase reported last month, April versus April 2011. While the increase in inventories is not out of line with the increase in shipments, we will need to keep a close eye on inventories with the decline in orders.
Furniture Factory and Warehouse Employees and Payrolls
The number of factory and warehouse employees increased 4 percent over May 2011, down from a 6 percent increase reported last month. The number of employees declined 1 percent from April, so it appears that the number of employees is showing the signs of softer business, although really minor adjustments so far.
Factory and warehouse payrolls were up 3 percent over May 2011 down from an 8 percent increase comparing April to April. This put payrolls up 8 percent year-to-date compared to a 10 percent increase reported last month. This decline also points to some slowdown in business.
The Conference Board Consumer Confidence Index® for July 2012 was not available at the time of publication.
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 1.5 percent in the second quarter of 2012, (that is, from the first quarter to the second quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.0 percent.
The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the second quarter, based on more complete data, will be released on August 29, 2012.
The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential fixed investment that were partly offset by a negative contribution from state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the second quarter primarily reflected a deceleration in PCE, an acceleration in imports, and decelerations in residential fixed investment and in nonresidential fixed investment that were partly offset by an upturn in private inventory investment, a smaller decrease in federal government spending, and an acceleration in exports.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.3 percent in June to 95.6 (2004=100), following a 0.4 percent increase in May, and a 0.1 percent decline in April.
Ataman Ozyildirim, economist at The Conference Board said: “The U.S. LEI declined in two of the last six months, and its six-month growth rate has eased in the last three months. The strengths among the leading indicators have become less widespread as consumer expectations and manufacturing new orders offset gains in the financial, labor, and construction-related components. Meanwhile, the coincident economic index, a measure of current economic conditions, has risen slowly but steadily in the last three months.”
Ken Goldstein, economist at The Conference Board said: “The U.S. economy is growing very slowly. The CEI basically reflects this steady but soft pace of overall economic activity. The LEI is pointing to no strengthening over the next few months, as the economy continues to sail through strong headwinds domestically and internationally.”
The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.2 percent in June to 104.5 (2004=100), following a 0.2 percent increase in May, and a 0.4 percent increase in April.
The Conference Board Lagging Economic Index® (LAG) increased 0.2 percent in June to 115.5 (2004 = 100), following a 0.3 percent increase in May, and a 0.6 percent increase in April.
Existing-home prices continued to show gains but sales fell in June with tight supplies of affordable homes limiting first-time buyers, 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 5.4 percent to a seasonally adjusted annual rate of 4.37 million in June from an upwardly revised 4.62 million in May, but are 4.5 percent higher than the 4.18 million-unit level in June 2011.
Single-family home sales declined 5.1 percent to a seasonally adjusted annual rate of 3.90 million in June from 4.11 million in May, but are 4.8 percent above the 3.72 million-unit pace in June 2011. The median existing single-family home price was $190,100 in June, up 8.0 percent from a year ago.
Lawrence Yun, NAR chief economist, said the bigger story is lower inventory and the recovery in home prices. “Despite the frictions related to obtaining mortgages, buyer interest remains solid. But inventory continues to shrink and that is limiting buying opportunities. This, in turn, is pushing up home prices in many markets,” he said. “The price improvement also results from fewer distressed homes in the sales mix.”
The national median existing-home price for all housing types was $189,400 in June, up 7.9 percent from a year ago. This marks four back-to-back monthly price increases from a year earlier, which last occurred in February to May of 2006. June’s gain was the strongest since February 2006 when the median price rose 8.7 percent from a year prior.
Total housing inventory at the end of June fell another 3.2 percent to 2.39 million existing homes available for sale, which represents a 6.6-month supply at the current sales pace, up from a 6.4-month supply in May. Listed inventory is 24.4 percent below a year ago when there was a 9.1-month supply.
Regionally, existing-home sales in the Northeast dropped 11.5 percent to an annual pace of 540,000 in June but were 1.9 percent above June 2011. The median price in the Northeast was $253,700, down 1.8 percent from a year ago.
Existing-home sales in the Midwest slipped 1.9 percent in June to a level of 1.02 million but were 14.6 percent higher than a year ago. The median price in the Midwest was $157,600, up 8.4 percent from June 2011.
In the South, existing-home sales declined 4.4 percent to an annual pace of 1.73 million in June but were 5.5 percent above June 2011. The median price in the South was $165,000, up 6.6 percent from a year ago.
Existing-home sales in the West fell 6.9 percent to an annual level of 1.08 million in June and were 3.6 percent below a year ago. The median price in the West was $233,300, up 13.3 percent from June 2011. Given tight supply in both the low and middle price ranges in this region, sales in the West were stronger in the higher price ranges.
New Residential Sales
According to the U.S. Census Bureau News Joint Release with the U.S. Department of Housing and Urban Development, sales of new single-family houses in June 2012 were at a seasonally adjusted annual rate of 350,000. This was 8.4 percent below the revised May rate of 382,000, but was 15.1 percent above the June 2011 estimate of 304,000.
The median sales price of new houses sold in June 2012 was $232,600; the average sales price was $273,900. The seasonally adjusted estimate of new houses for sale at the end of June was 144,000. This represents a supply of 4.9 months at the current sales rate.
Sales of new houses were flat in the Northeast compared to June 2011, but were up 19.6 percent in the Midwest, 6.5 percent in the South and 36.1 percent in the West. Year-to-date, sales were up 20.3 percent overall, with the Northeast up 32.0 percent and the West up by 27.1 percent, followed by 19.3 percent increase in the Midwest and 15.9 percent increase in the South.
According to the U.S. Census Bureau News Joint Release with the Department of Housing and Urban Development, privately-owned housing starts in June were at a seasonally adjusted annual rate of 760,000. This was 6.9 percent above the revised May estimate of 711,000 and was 23.6 percent above the June 2011 rate of 615,000. Single-family housing starts in June were at a rate of 539,000; this was 4.7 percent above the revised May figure of 515,000. Single-family housing completions in June were at a rate of 470,000; this was 1.3 percent above the revised May rate of 464,000.
Regionally, single unit starts were up over June 2011 42.1 percent in the Northeast; 8.3 percent in the Midwest; 18.7 percent in the South; and 33.7 percent in the West.
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $401.5 billion, a decrease of 0.5 percent from the previous month, but 3.8 percent above June 2011. Total sales for the April through June 2012 period were up 4.7 percent from the same period a year ago.
Retail trade sales were down 0.5 percent from May 2012, but 3.5 percent above last year. Nonstore retailers sales were up 10.9 percent from June 2011 and furniture and home furnishings stores were up 7.8 percent from last year.
The advance report showed that sales at furniture and home furnishings stores were up 9 percent year-to-date compared to the same period a year ago. This was the highest 6 month increase among all 13 categories reported, with the exception of non-store retailers whose sales were up 11.2 percent.
The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in June 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 energy index continued to fall in June, but its decline was offset by increases in the indexes for food and all items less food and energy. The energy index fell 1.4 percent as the gasoline index declined for the third month in a row; other energy indexes were mixed. The food index rose 0.2 percent after being unchanged last month as the index for food at home turned up in June.
The index for all items less food and energy rose 0.2 percent in June; the fourth consecutive such increase. The shelter index posted its smallest increase since September, the index for used cars and trucks was unchanged after a series of increases, and the index for airline fares declined. However, the index for medical care posted its largest increase since 2010 and the indexes for apparel and recreation both rose substantially in June.
The 12-month change in the index for all items was 1.7 percent in June; the same figure as in May. The energy index declined 3.9 percent over the last 12 months, while the food index rose 2.7 percent. The index for all items less food and energy rose 2.2 percent for the 12 months ending June, a slight decline from the 2.3 percent figure in May.
Nonfarm payroll employment continued to edge up in June (+80,000), and the unemployment rate was unchanged at 8.2 percent, according to the U.S. Bureau of Labor Statistics. Professional and business services added jobs, and employment in other major industries changed little over the month. The number of unemployed persons (12.7 million) was essentially unchanged in June.
In June, the number of long-term unemployed (those jobless for 27 weeks and over) was essentially unchanged at 5.4 million. These individuals accounted for 41.9 percent of the unemployed.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in June increased $3.4 billion or 1.6 percent to $221.6 billion, according to advance reports by the U.S. Census Bureau. This increase, up two consecutive months, followed a 1.6 percent May increase. Excluding transportation, new orders decreased 1.1 percent. Excluding defense, new orders decreased 0.7 percent.
Transportation equipment, up four of the last five months, had the largest increase, $5.1 billion or 8.0 percent to $68.8 billion.
Shipments of manufactured durable goods in June, up six of the last seven months, increased $0.2 billion or 0.1 percent to $225.4 billion. This followed a 1.2 percent May increase.
Machinery, up four of the last five months, had the largest increase, $1.0 billion or 3.1 percent to $32.9 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.2 percent May increase.
According to the final report from the U.S. Census Bureau for May, orders for furniture and related products were up 3.2 percent compared to April and up 3.4 percent year-to-date. Shipments in this category were up 4.0 percent year-to-date.
As expected, due to the timing of the April High Point Market, new orders rebounded in May after a 13 percent drop last month. Orders in May were 10 percent higher than May 2011. This increase brought the year-to-date up to a 4 percent increase over the same period a year ago. Orders through the March 2012 quarter were up 8 percent so while the timing of Market did have some impact, the results confirmed what we had been hearing about the slower business conditions in April and May.
The good news for this report is that shipments remained fairly strong with May shipments up 7 percent over May 2011. Obviously shipments turn eventually to cash so that is a good thing. Year-to-date, shipments are now up 9 percent over the first 5 months of last year.
With shipments exceeding orders, backlogs have come down significantly. In March, backlogs were 18 percent higher than March 2011. Backlogs in May were only 5 percent higher than May 2011 so eventually we will see shipment increases decline if orders do not pick up pretty soon.
Receivable levels remained in good shape. Inventories were up 8 percent over last May, not really out of line with shipments and earlier orders, but will need to be watched if business continues to soften.
From what we have heard from most, we do not expect to see significant improvements in the June numbers. We seem to be just moving along somewhat like the economy, which does not have many bright spots.
One of the bright spots is housing. While the newsmakers talked about the slowdown in existing home sales, most failed to mention that some of that was caused by a shortage of homes for sale in parts of the country. This appears to be causing home prices to start back up. Once homeowners think the market has improved, we may see more come on the market, though it is doubtful these prices will return to pre-recession levels.
Housing starts and completions and new residential sales are also on the rise especially compared to a year ago. This could really help stabilize the economy as that puts more people in a wide variety of jobs back to work.
Unfortunately, now that most consumers can read and hear about all the worldwide problems, on a daily or hourly basis, these consumers just do not feel comfortable enough to start spending for things that are not necessary. We have had several conversations with others lately complaining about not being able to remember anything. Most have come to the conclusion that it is all about information overload and most of it is bad news.
We can’t even switch to sports talk radio now without hearing all the bad news from Penn State et al. No wonder consumer confidence is down.
Hopefully housing can continue to be a bright spot in the economy. That will go a long way towards improving the overall economy. Now, back to some more political ads that really make you joyous.
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