Monthly Results
New Orders
According to our latest survey of residential furniture manufacturers and distributors, new orders in February 2009 were 18 percent lower than February 2008 orders. New orders were down 22 percent for the first two months of the year compared to the same period a year ago. Orders were 19 percent higher than January levels.
The results for February were somewhat in line with expectations. We had heard from many that there seemed to be a bit of improvement in February, albeit very slight. Some 89 percent of the participants reported new orders declines. Approximately 65 percent of the participants reported orders down 20 percent or more.
Shipments and Backlogs
Shipments in February 2009 were down 20 percent from February 2008 bringing shipments for the first two months of 2009 down 22 percent compared to last year. Approximately 93 percent of the participants are reporting declines in shipments for the first two months of the year.
Backlogs were down 21 percent from February 2008 compared to a 22 percent drop in January 2009 compared to January 2008. With the rise in orders in February versus January, backlogs increased 4 percent over January.
Receivables and Inventories
Receivable levels were 18 percent lower than February 2008, a bit out of line with shipment levels. Last month receivables were 23 percent lower than January 2008 when shipments were off 24 percent. But, receivables were only up 1 percent over January even with the increase in shipments. Based on conversations at market, receivables need to be closely monitored.
Inventory levels were off 6 percent from February 2008, the same decline as last month. February 2008 levels were 6 percent below February 2007. Inventories were 7 percent lower than January. Inventory levels continue to be a bit high based on volume of business although we continue to hear that many have about worked their slow moving and discontinued items down to more acceptable levels.
Factory and Warehouse Employees and Payrolls
The number of employees fell 4 percent from January levels. Compared to February 2008, the number of employees is off 19 percent, up from 17 percent last month.
Payrolls for these employees were down 22 percent from February 2008 and down 24 percent for the two month period. It appears that payrolls are being adjusted to current order and shipment rates.
National
Consumer Confidence
Finally some good, or should we say better, news out of The Conference Board. According to their report, The Conference Board Consumer Confidence Index™, which had posted a slight increase in March, improved considerably in April. The Index now stands at 39.2 (1985=100), up from 26.9 in March. The Present Situation Index increased to 23.7 from 21.9 last month. The Expectations Index rose to 49.5 from 30.2 in March.
Lynn Franco, Director of The Conference Board Consumer Research Center said, “Consumer Confidence rose in April to its highest reading in 2009, driven primarily by a significant improvement in the short-term outlook. The Present Situation Index posted a moderate gain, a sign that conditions have not deteriorated further, and may even moderately improve, in the second quarter. The sharp increase in the Expectations Index suggests that consumers believe the economy is nearing a bottom, however, this Index still remains well below levels associated with strong economic growth.”
Consumers’ short-term outlook improved significantly in April. Those anticipating business conditions will worsen over the next six months declined to 25.3 percent from 37.8 percent, while those expecting conditions to improve increased to 15.6 percent from 9.6 percent in March.
The employment outlook was also considerably less pessimistic. The percentage of consumers anticipating fewer jobs in the months ahead decreased to 33.6 percent from 41.6 percent, while those expecting more jobs increased to 13.9 percent from 7.3 percent. The proportion of consumers anticipating an increase in their incomes edged up to 8.0 percent from 7.8 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 – decreased at an annual rate of 6.1 percent in the first quarter of 2009, (that is, from the fourth quarter to the first quarter), according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent.
The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, private inventory investment, equipment and software, nonresidential structures, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, decreased.
The slightly smaller decrease in real GDP in the first quarter than in the fourth reflected an upturn in PCE for durable and nondurable goods and a larger decrease in imports that were mostly offset by larger decreases in private inventory investment and in nonresidential structures and a downturn in federal government spending.
Motor vehicle output subtracted 1.36 percentage points from the first-quarter change in real GDP after subtracting 2.01 percentage points from the fourth-quarter change. Final sales of computers added 0.05 percentage point to the first-quarter change in real GDP after subtracting 0.02 percentage point from the fourth-quarter change.
Leading Economic Indicators
The Conference Board Leading Economic Index™ (LEI) for the U.S. declined 0.3 percent in March, following a 0.2 percent decrease in February, and a 0.2 percent decline in January.
Ken Goldstein, Economist at The Conference Board said: “The recession may continue through the summer, but the intensity will ease. There have been some intermittent signs of improvement in the economy in April, but the leading economic index and most of its components are still pointing down.”
The Conference Board Coincident Economic Index™ (CEI) for the U.S. declined 0.4 percent in March, following a 0.6 percent decline in February, and a 0.9 percent decline in January. The Conference Board Lagging Economic Index™ declined 0.4 percent in March, following a 0.3 percent decline in February, and a 0.2 percent decline in January.
Housing
Existing-Home Sales
According to the National Association of Realtors (NAR), existing-home sales –including single-family, townhomes, condominiums and co-ops – declined 3.0 percent to a seasonally adjusted annual rate of 4.57 million units in March from a downwardly revised level of 4.71 million in February, and were 7.1 percent lower than the 4.92 million-unit pace in March 2008.
Single-family home sales slipped 2.8 percent to a seasonally adjusted annual rate of 4.10 million in March from a pace of 4.22 million in February, and are 5.7 percent below the 4.35 million-unit pace in March 2008. The median existing single-family home price was $174,900 in March, which is 11.5 percent lower than a year ago.
Lawrence Yun, NAR chief economist, said the market appears to be stabilizing with modest monthly ups and downs, and that first-time buyers are driving the market. “The share of lower priced home sales has trended up, indicating a return of many first-time buyers, which we also see in a parallel member survey,” he said. “Sales in the upper price ranges remain stalled because of higher interest rates on jumbo loans.”
Although prices rose from February to March, the national median existing-home price for all housing types was $175,200, down 12.4 percent from March 2008. The price increase from February to March was 4.2 percent, which is much higher than the typical 1.8 percent seasonal increase between those two months. Distressed properties, which accounted for just over half of all transactions in March, typically are selling for 20 percent less than traditional homes.
An NAR practitioner survey in March showed first-time buyers accounted for 53 percent of transactions, based largely on contracts offered before the $8,000 first-time home buyer tax credit became available. “Buyer traffic has been rising, and real estate offices are getting phone inquiries about the tax credit,” Yun said. “By early summer we should be seeing a positive impact on home sales from record-low mortgage interest rates in addition to the stimulus provisions.”
Total housing inventory at the end of March fell 1.6 percent to 3.74 million existing homes available for sale, which represents a 9.8-month supply at the current sales pace, compared with a 9.7-month supply in February.
Regionally, existing-home sales in the Northeast fell 8.0 percent to an annual pace of 690,000 in March, and are 22.5 percent below a year ago. The median price in the Northeast was $231,700, down 18.4 percent from March 2008.
Existing-home sales in the Midwest were unchanged in March at a pace of 1.04 million but are 11.1 percent lower than March 2008. The median price in the Midwest was $141,300, which is 6.1 percent below a year ago.
In the South, existing-home sales slipped 1.7 percent to an annual pace of 1.71 million in March and are 10.9 percent below a year ago. The median price in the South was $146,900, down 12.2 percent from March 2008.
Existing-home sales in the West declined 4.2 percent to an annual rate of 1.13 million in March but are 18.9 percent higher than a year earlier. The median price in the West was $252,400, which is 11.1 percent below March 2008.
New Residential Sales
According to the U.S. Census Bureau, sales of new one-family houses in March 2009 were at a seasonally adjusted annual rate of 356,000. This is 0.6 percent below the revised February rate of 358,000 and is 30.6 percent below the March 2008 estimate of 513,000.
The median sales price of new houses sold in March 2009 was $201,400; the average sales price was $258,000. The seasonally adjusted estimate of new houses for sale at the end of March was 311,000. This represents a supply of 10.7 months at the current sales rate.
Across the nation, new home sales were off about 30 percent in March compared to March a year ago in all regions reporting. The declines ranged from 29.7 percent in the South to 32.9 percent in the Midwest.
Housing Starts
According to the U.S. Census Bureau, privately-owned housing starts in March were at a seasonally adjusted annual rate of 510,000. This is 10.8 percent below the revised February estimate of 572,000 and is 48.4 percent below the March 2008 rate of 988,000.
Single-family housing starts in March were at a rate of 358,000; this is unchanged from the revised February figure of 358,000. The March rate for units in buildings with five units or more was 116,000.
Retail Sales
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $344.4 billion, a decrease of 1.1 percent from the previous month and 9.4 percent below March 2008. Total sales for the January through March 2009 period were down 8.8 percent from the same period a year ago. The January 2009 to February 2009 percent change was revised from -0.1 percent to +0.3 percent.
Retail trade sales were down 1.1 percent from February 2009 and 10.7 percent below last year. Gasoline stations sales were down 34.0 percent from March 2008 and motor vehicle and parts dealers sales were down 23.5 percent from last year.
Sales at furniture and home furnishings stores were down 13 percent on an adjusted basis for March and down 1.7 percent from February. Year-to-date, the report indicated that sales at these stores were down 13.9 percent. Other than motor vehicle and parts dealers and gasoline stations, the furnishings category reported the highest decline.
Consumer Prices
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March, before seasonal adjustment, according to the Bureau of Labor Statistics of the U.S. Department of Labor. The index has decreased 0.4 percent over the last year, the first 12 month decline since August 1955.
On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in March after rising 0.4 percent in February. The decrease was due to a downturn in the energy index, which declined 3.0 percent in March after rising 3.3 percent the previous month. All the energy indexes decreased, particularly the indexes for fuel oil, natural gas, and motor fuel. The food index declined 0.1 percent for the second straight month to virtually the same level as October 2008.
The index for all items less food and energy increased 0.2 percent for the third month in a row. An 11.0 percent increase in the index for tobacco and smoking products accounted for over sixty percent of the March rise, with a 0.6 percent increase in the new vehicles index also contributing. In contrast, the indexes for lodging away from home, used cars and trucks, and airline fares continued to decline. The index for all items less food and energy has risen 1.8 percent over the past year.
Employment
Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent, according to the Bureau of Labor Statistics of the U.S. Department of Labor. Since the recession began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months. In March, job losses were large and widespread across the major industry sectors.
The number of long-term unemployed (those jobless for 27 weeks or more) rose to 3.2 million over the month and has increased by about 1.9 million since the start of the recession in December 2007.
Durable Goods Orders and Factory Shipments
According to the U.S. Census Bureau, new orders for manufactured durable goods in March decreased $1.3 billion or 0.8 percent. This was the seventh decrease in the last eight months and followed a 2.1 percent February increase. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders also decreased 0.6 percent.
Shipments of manufactured durable goods in March, down eight consecutive months, decreased $3.0 billion or 1.7 percent. This followed a 0.8 percent February decrease.
For the furniture and related products category, the report indicated that shipments were basically flat for March compared to February, but were down 18 percent compared to March 2008 and down 19.6 percent year-to-date. Orders were off 17 percent for the month versus last year and 19 percent year-to-date.
Consumer Credit
The Federal Reserve reported that consumer credit fell 3.5 percent in February after a 3.8 percent increase in January. This followed a decline of 3.0 percent for the fourth quarter. February results indicated a 9.7 percent decline in revolving debt.
Summary
The results for February were some-what in line with expectations. While the numbers continue to reflect poor results, the decline seems to be easing a bit. We will soon start hitting some of the months where we really fell off last year, but still have a few not so bad months to go yet.
We enjoyed lots of conversations at market. With many of the public company results reported just before market, it gave people quite a bit to talk about. Most people we talked to were shocked to see the numbers, especially of some companies that we all think of as very well run companies.
Market attendance was off some as we expected, but most felt that they saw the key players they needed to see. We heard from several that some retailers were noting that they had some open slots, which was good to hear. The mood of those here seemed to be that, while still very cautious, there appears to be some hope that business is starting to show a bit of life out there.
The new dates for market created a different traffic pattern than most were used to. While some were not crazy about the new dates, by the time it was over, many seemed pleased. It was quite unusual to hear that for most, day 3 was their best day for traffic.
No matter what all the other key elements are, the key is consumer confidence. That report this month, while still very low, was encouraging. Hopefully, this will carryover and lead to more traffic in the stores as well as some buying.
Let’s hope the mood of market carries over to all the buyers that came to market. The “commitments” and “orders” made at market can lead to at least the start of better business as we go forward.
One of my favorite quotes we gave at market was, when you are thinking of your future; remember there is a difference in a vision and a hallucination.
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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.
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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