Monthly Furniture Insights Report From Smith Leonard
Furniture Industry News Update -
Furniture World Magazine
New orders in July increased 4 percent over July 2011, according to our latest survey of residential furniture manufacturers and distributors. This increase followed a 3 percent increase in June. Increased orders were reported by 65 percent of the participants for the month of July.
Year-to-date, new orders remained 4 percent ahead of the same period a year ago. Approximately 66 percent of the participants have reported increased orders year-to-date. It is interesting to note that not all the same participants reported increases for the month and year-to-date.
The results were about what we expected based on recent conversations. We are not expecting much more out of August results.
Shipments and Backlogs
Shipments in July 2012 were 3 percent ahead of July 2011 following four straight months of 7 percent increases. Only 55 percent of the participants reported increases for the month. Shipments in July were off 22 percent from June 2012, but that is somewhat normal due to most companies shutting down for the week of the 4th.
Year-to-date, shipments were up 8 percent (down from 9 percent reported last month). Some 68 percent of the participants reported increased shipments for the seven months of 2012 over the same period a year ago.
Backlogs were 2 percent higher than July 2011, down slightly from a 3 percent increase reported last month. It appears that backlogs are now reflecting the lower order rates of the last few months.
Receivables and Inventories
Receivables in July were 1 percent higher than July 2011. They were down 9 percent from June, reflecting the reduction of shipments in July. Since July shipments primarily occur in the last two weeks of the month, we would not expect receivable levels to fall as much as shipments.
Compared to last year at this time, receivable levels remain in good shape.
Inventories were 11 percent higher than July 2011, up from a 9 percent increase reported last month. We hope that some of this may have related to the July 4th holiday week. If not, then it appears that inventories are going in the wrong direction. Inventory levels were up over last year for 69 percent of our participants.
Factory and Warehouse Employees and Payrolls The number of factory and warehouse employees was up 3 percent over July 2011. In June, the number of employees was up 4 percent. These statistics are much more in line with current business conditions.
Factory and warehouse payrolls were up 4 percent over July 2011 and down 23 percent from June, as would be expected for the holiday week.
Year-to-date, factory and warehouse payrolls were up 7 percent, about the same as last month and in line with the increase in shipments.
National/ Consumer Confidence
The Conference Board Consumer Confidence Index®, which had declined in August, improved in September. The index now stands at 70.3 (1985=100), up from 61.3 in August. The Expectations Index increased to 83.7 from 71.1. The Present Situation Index rose to 50.2 from 46.5 last month.
Lynn Franco, Director of Economic Indicators at The Conference Board said: “The Consumer Confidence Index rebounded in September and is back to levels seen earlier this year (71.6 in February 2012). Consumers were more positive in their assessment of current conditions, in particular the job market, and considerably more optimistic about the short-term outlook for business conditions, employment and their financial situation. Despite continuing economic uncertainty, consumers are slightly more optimistic than they have been in several months.”
Consumers’ appraisal of present-day conditions improved in September. Those claiming business conditions are “good” edged up to 15.5 percent from 15.3 percent, while those saying business conditions are “bad” declined to 33.3 percent from 34.3 percent. Consumers’ assessment of the labor market was also more upbeat. Those stating jobs are “plentiful” rose to 8.3 percent from 7.2 percent, while those claiming jobs are “hard to get” edged down to 39.9 percent from 40.6 percent.
Consumers were also more optimistic about the short-term outlook in September. Those expecting business conditions to improve over the next six months increased to 18.2 percent from 16.7 percent, while those anticipating business conditions to worsen decreased to 13.8 percent from 17.6 percent. Consumers’ outlook for the labor market was also more favorable. Those expecting more jobs in the months ahead increased to 18.5 percent from 15.8 percent, while those anticipating fewer jobs declined to 18.5 percent from 23.7 percent. The proportion of consumers expecting an increase in their incomes edged up to 16.3 percent from 16.0 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 1.3 percent in the second quarter of 2012, (that is, from the first quarter to the second quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.0 percent.
The GDP estimate released is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.7 percent.
The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, and residential fixed investment 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.
The deceleration in real GDP in the second quarter primarily reflected decelerations in PCE, in nonresidential fixed investment, and in residential fixed investment that were partly offset by smaller decreases in federal government spending and in state and local government acceleration in exports.
Leading Economic Indicators
The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.1 percent in August to 95.7 (2004=100), following a 0.5 percent increase in July, and a 0.5 percent decline in June.
Ataman Ozyildirim, economist at The Conference Board said: “The U.S. LEI has declined in three of the last six months. While its six-month growth rate has slowed substantially, it still remains in growth territory due to positive contributions from the financial components including stock prices, yield spread and the Leading Credit Index. Over the last several months, the U.S. LEI seems to be fluctuating around a flat trend, while strengths and weaknesses among its components remain balanced. Meanwhile, the coincident economic index, a measure of current economic activity, edged up in August. The strengths among the coincident indicators have become less widespread, with three out of four components advancing over the past six months.”
Ken Goldstein, economist at The Conference Board said: “The U.S. economy continues to be buffeted by strong headwinds domestically and internationally. As a result, the pace of growth is unlikely to change much in the coming months. Weak domestic demand continues to be a major drag on the economy.”
Housing/ Existing-Home Sales
Existing-home sales continued to improve in August and the national median price rose on a year-over-year basis for the sixth straight month, according to the National Association of Realtors® (NAR).
Single-family home sales rose 8.0 percent to a seasonally adjusted annual rate of 4.30 million in August from 3.98 million in July, and were 10.0 percent above the 3.91 million-unit pace in August 2011. The median existing single-family home price was $188,700 in August, up 10.2 percent from a year ago.
Total existing-home sales, which are completed transactions that include single- family homes, townhomes, condominiums and co-ops, rose 7.8 percent to a seasonally adjusted annual rate of 4.82 million in August from 4.47 million in July, and are 9.3 percent higher than the 4.41 million-unit level in August 2011.
Lawrence Yun, NAR chief economist, said favorable buying conditions get the credit. “The housing market is steadily recovering with consistent increases in both home sales and median prices. More buyers are taking advantage of excellent housing affordability conditions,” he said. “Inventories in many parts of the country are broadly balanced, favoring neither sellers nor buyers. However, the West and Florida markets are experiencing inventory shortages, which are placing pressure on prices.”
“The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is testament to the sizable stored-up housing demand that accumulated in the past five years,” Yun added. The national median existing-home price for all housing types was $187,400 in August, up 9.5 percent from a year ago. The last time there were six back-to-back monthly price increases from a year earlier was from December 2005 to May 2006. The August increase was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.
Total housing inventory at the end of August rose 2.9 percent to 2.47 million existing homes available for sale, which represents a 6.1-month supply at the current sales pace, down from a 6.4-month supply in July. Listed inventory is 18.2 percent below a year ago when there was an 8.2-month supply.
Regionally, existing-home sales in the Northeast rose 8.6 percent to an annual pace of 630,000 in August and were also 8.6 percent above August 2011. The median price in the Northeast was $245,200, up 0.6 percent from a year ago.
Existing-home sales in the Midwest increased 7.7 percent in August to a level of 1.12 million and were 17.9 percent higher than a year ago. The median price in the Midwest was $152,400, up 7.8 percent from August 2011.
In the South, existing-home sales rose 7.3 percent to an annual pace of 1.90 million in August and were 11.1 percent above August 2011. The median price in the region was $160,100, up 6.5 percent from a year ago.
Existing-home sales in the West increased 8.3 percent to an annual level of 1.17 million in August but were unchanged from a year ago. With ongoing inventory shortages, the median price in the West was $242,000, which was 16.3 percent higher than August 2011.
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 August 2012 were at a seasonally adjusted annual rate of 373,000. This was 0.3 percent below the revised July rate of 374,000, but was 27.7 percent above the August 2011 estimate of 292,000.
The median sales price of new houses sold in August 2012 was $256,900; the average sales price was $295,300. The seasonally adjusted estimate of new houses for sale at the end of August was 141,000. This represents a supply of 4.5 months at the current sales rate.
August new houses sold were up from August 2011 56.5 percent in the Northeast, 16.7 percent in the Midwest, 11.5 percent in the South and 64.6 percent in the West.
According to the U.S. Census Bureau News Joint Release with the Department of Housing and Urban Development, privately-owned housing starts in August were at a seasonally adjusted annual rate of 750,000. This was 2.3 percent above the revised July estimate of 733,000 and was 29.1 percent above the August 2011 rate of 581,000. Single-family housing starts in August were at a rate of 535,000; this was 5.5 percent above the revised July figure of 507,000. Housing starts of single unit structures were up 31.4 percent in the Northeast; 74.5 percent in the Midwest; 17.2 percent in the South and 23.9 percent in the West compared to a year ago.
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $406.7 billion, an increase of 0.9 percent from the previous month and 4.7 percent above August 2011. Total sales for the June through August 2012 period were up 4.0 percent from the same period a year ago.
Retail trade sales were up 0.9 percent from July 2012 and 4.4 percent above last year. Auto and other motor vehicle dealers were up 12.3 percent from August 2011 and nonstore retailers sales were up 10.6 percent from last year.
On an adjusted basis, sales at furniture and home furnishings stores were up 0.3 percent from July and up 8.4 percent over August 2011. Year-to-date, sales at these stores were up 9.2 percent over last year, the highest of all 13 categories except for nonstore retailers.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in August 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 seasonally adjusted increase in the all items index was the largest since June 2009. About 80 percent of the increase was accounted for by the gasoline index, which rose 9.0 percent and was the major factor in the energy index rising sharply in August after declining in each of the four previous months.
The food index increased 0.2 percent in August, with major grocery store food group indexes mixed. The index for all items less food and energy rose 0.1 percent for the second month in a row. The indexes for shelter, medical care, personal care, new vehicles, and recreation all rose in August. These increases more than offset declines in the indexes for used cars and trucks, apparel, household furnishings and operations, and airline fares.
The 12-month change in the index for all items was 1.7 percent in August; an increase from the July figure of 1.4 percent. The index for all items less food and energy rose 1.9 percent for the 12 months ending August, a slight decline from the 2.1 percent figure in July and its smallest increase since July 2011.
Total nonfarm payroll employment rose by 96,000 in August, and the unemployment rate edged down to 8.1 percent, according to the U.S. Bureau of Labor Statistics.
Employment increased in food services and drinking places, in professional and technical services, and in health care. The number of unemployed persons, at 12.5 million, was little changed in August.
Durable Goods Orders and Factory Shipments
New orders for manufactured durable goods in August decreased $30.1 billion or 13.2 percent to $198.5 billion, according to the U.S. Census Bureau. This decrease, down following three consecutive monthly increases, was the largest decrease since January 2009 and followed a 3.3 percent July increase. Excluding transportation, new orders decreased 1.6 percent. Excluding defense, new orders decreased 12.4 percent.
Transportation equipment, down following four consecutive monthly increases, had the largest decrease, $27.8 billion or 34.9 percent to $51.9 billion.
Shipments of manufactured durable goods in August, down two of the last three months, decreased $6.8 billion or 3.0 percent to $222.5 billion. This was also the largest decrease since January 2009 and followed a 1.9 percent July increase.
Transportation equipment, down two of the last three months, had the largest decrease, $5.5 billion or 7.9 percent to $63.9 billion. This followed a 7.9 percent July increase.
Once again, according to our latest survey, the industry did not exceed our expectations in July. New orders were up 4 percent in July compared to July 2011, leaving year-to-date new orders at a 4 percent increase as well.
Shipments were up 3 percent in July bringing our year-to-date shipments down to an 8 percent increase.
From what we have gathered, we do not expect the August results to be significantly different than the last few months – really since March if you ignore the spikes and valleys around Market dates.
On the good news side, consumer confidence improved in September moving up to 70.3, up from 61.3. This was almost back to February 2012 levels when business was clearly better.
Also, housing continues to show improvement with very nice gains in both existing and home sales and housing starts, pretty much across the country. Reports of shortages in the West and Florida for existing homes seem to indicate that housing is really rebounding. Sooner or later this should drive some furniture sales. And as we have said before, with tighter mortgage restrictions, there should be more disposable income for these homebuyers – assuming they don’t spend it all at the Apple stores.
Gas prices have been a bother lately, but as hurricane season comes to an end, hopefully the supply lines will all stay in full gear.
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: firstname.lastname@example.org
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