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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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Monthly Results New Orders: According to our latest survey of residential furniture manufacturers and distributors, new orders fell 6 percent in June 2007 compared to June 2006. New orders were 9 percent higher in June compared to May, but that was caused by some of the timing of market orders as discussed last month. For the month, approximately 83 percent of the participants reported declines in new orders in June compared to last year, higher than what has been reported in recent months. For the first half of the year, new orders remained 5 percent lower than the first half of 2006. Some 70 percent of the participants reported order rates lower than the first half of last year, up from 65 percent in May and 60 percent in March. Shipments and Backlogs: Shipments in June were 6 percent lower than June of 2006, but 6 percent higher than May. Year-to-date, shipments are 7 percent lower than the first six months of last year. Receivables and Inventories: Receivable levels were flat with May despite the increase in shipments. Compared to last June, receivables were 4 percent lower. With the 7 percent decline in shipments, it appears that the trends of earlier in the year have reversed and receivables are stretching out. But the gap widened somewhat in June as receivables were 5 percent lower in May 2007 versus May 2006. These will need to be watched as more retailers are beginning to struggle for business. Inventories, on the other hand, appear to be in much better shape, down 12 percent from June 2006. Inventory levels were flat with May. With orders down 5 percent and shipments down 7 percent year-to-date, the 12 percent decline indicates that inventory levels are well in line. Of course with more and more direct shipments being made, these percentages should be showing more of a gap, but it is difficult to determine how much of an impact this is having. Factory Employees and Payroll: The number of factory employees fell another percentage point from May bringing the comparison to June of last year at 15 percent lower. In May, compared to May 2006, the reduction in employees was 14 percent. Payrolls were 12 percent lower than June last year, compared to 6 percent last month. Year-to-date, payrolls were reportedly down 9 percent from last year. The declines in employees and payroll continue to reflect the impact of plant closings as well as softer business conditions in the industry. National Consumer Confidence: One of our key economic indicators took another hit in August when The Conference Board Consumer Confidence Index fell back to 105.0, down from 111.9 in July. This decline gave back the gain that was posted in July. The Present Situation Index decreased to 130.3 from 138.3 in July while the Expectations Index declined to 88.2 from 99.4. Lynn Franco, Director of The Conference Board Consumer Research Center said: “A softening in business conditions and labor market conditions has curbed consumers’ confidence this month. In addition, the volatility in financial markets and continued sub- prime housing woes may have played a role in dampening consumers’ spirits. But, despite less favorable conditions and in spite of all the recent turmoil, consumers still remain confident. And, current Index levels suggest further economic growth in the months ahead.” Consumers’ assessment of present-day conditions in August was less upbeat than in July. Those claiming conditions are “good” decreased to 26.4 percent from 28.3 percent, while those saying conditions are “bad” increased to 16.3 percent from 14.5 percent. Consumers were also less positive in their appraisal of the labor market. Those saying jobs are “hard to get” increased to 19.7 percent from 18.7 percent. Those claiming jobs are “plentiful” decreased to 27.5 percent from 30.0 percent in July. Gross Domestic Product: According to the latest release of the Bureau of Economic Analysis, real gross domestic product (GDP) increased 4.0 percent in the second quarter of 2007, up from the advance estimates of 3.4 percent. The change in the growth rate from last month’s estimate reflected upward revisions to nonresidential structures, to equipment and software investments, to exports and a downward revision to imports. There was an offset due to a downward revision to residential fixed investment. Housing: Total existing home sales in July were off 0.2 percent to a seasonally adjusted rate of 5.75 million units, down slightly from an upwardly revised pace of 5.76 million in June. The July sales were 9.0 percent below July 2006 sales according to the report from the National Association of Realtors. Single-family home sales (excluding condos, town homes and co-ops) fell 0.4 percent and were 9.3 percent below the sales in July 2006. The median existing single family home selling price fell 1.0 percent. Regionally, existing home sales rose 1.8 percent in the West, but still 15.2 percent below a year ago. Sales in the Northeast rose 1 percent but were 2.9 percent lower than last year. In the South, sales for the month were even but 10.7 percent below a year ago. And in the Midwest, sales fell 2.2 percent and are 5.6 percent below a year ago. Total inventory of existing homes rose 5.1 percent. This represents a 9.6 month supply, up from 9.1 months in July. Lawrence Yun, NAR senior economist, said the market is holding on despite temporary mortgage disruptions. “Home sales probably would be rising in the absence of the mortgage liquidity issues of the past two months,” he said. “Some buyers with contracts have been scrambling when loan commitments did not materialize at the last moment, while other potential buyers are simply waiting for the mortgage market to stabilize. “The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom. Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path.” Sales of new one-family homes in July were at a seasonally adjusted rate of 870,000 according to estimates from the U.S. Census Bureau. This was 2.8 percent above the June rate but was 10.2 percent below the July 2006 estimate. The report indicated that there was a 7.5 months supply of new houses at the current sales rate. Sales were off in the Northeast, basically flat in the Midwest and South and up in the West. Privately owned housing starts were 6.1 percent below the revised June estimate and were 20.9 percent below the July 2006 levels. Single family starts were off 7.3 percent in July compared to June. Consumer Prices: According to the Bureau of Labor Statistics of the U.S. Department of Labor, on a seasonally adjusted basis, the CPI-U advanced 0.1 percent in July, following a 0.2 percent increase in June. The index for energy declined for the second consecutive month, down 1.0 percent in July. The index for petroleum-based energy decreased 1.4 percent. The index for energy services fell 0.5 percent, resulting from a 1.7 percent decline in the index for natural gas. The food index rose 0.3 percent in July, reflecting a 0.5 percent increase in food away from home. The index for food at home rose 0.1 percent in July after registering average monthly increases of 0.6 percent in the first six months of the year. The index for all items less food and energy advanced 0.2 percent in July, the same as in June. A smaller increase in the index for shelter was offset by an advance in the apparel index and larger increases in the indexes for medical care and for new and used vehicles. During the first seven months of 2007, the CPI-U rose at a 4.5 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 2.5 percent for all of 2006. The index for energy, which rose 2.9 percent in 2006, advanced at a 21.3 percent SAAR in the first seven months of 2007 despite registering declines in each of the last two months. Petroleum-based energy costs increased at a 36.9 percent annual rate and charges for energy services rose at a 3.8 percent annual rate. The food index has increased at a 5.7 percent SAAR thus far this year, following a 2.1 percent rise for all of 2006. Excluding food and energy, the CPI-U advanced at a 2.3 percent SAAR in the first seven months, following a 2.6 percent rise for all of 2006. Retail Sales: The U.S. Census Bureau announced its advance estimates for retail sales. According to the report, U.S. retail and food service sales for July, adjusted for seasonal variation and holiday trading-day differences, but not for price changes, increased 0.3 percent from the previous month and 3.2 percent above July 2006. Total sales for the May through July 2007 period were up 4.1 percent from the same period a year ago. The May to June 2007 percent change was revised from -0.9 percent to -0.7 percent. Retail trade sales were up 0.2 percent from June 2007 and were 2.7 percent above last year. Food services and drinking places were up 8.0 percent from July 2006 and sales of nonstore retailers were up 7.3 percent from last year. Sales at furniture and home furnishings stores increased 0.5 percent on a seasonally adjusted basis over June as well as over July last year. For the seven months, sales at these stores were up 2.9 percent over the same period a year ago. Employment: Nonfarm payroll continued its upward trend adding 92,000 jobs in July. The unemployment rate remained at 4.6 percent according to the Bureau of Labor Statistics. Average hourly earnings rose by 6 cents or 0.3 percent. The number of persons unemployed 27 weeks and over rose by 188,000 to 1.3 million. This group accounted for 18.4 percent of total unemployment, up from 16.2 percent in June. Durable Goods Orders and Shipments: According to the U.S. Census Bureau, new orders for manufactured durable goods increased 6 percent in July. New orders have been up 5 of the last 6 months. This level marked the highest level since the series was first started in 1992. Transportation equipment had the largest increase, accounting for over half the dollar increase for the month. Shipments of manufactured durable goods, up four of the last five months, increased in July by 3.9 percent. This was also the highest level of shipments since the series started. Transportation equipment again was the big winner. According to this report, shipments of furniture and related products declined 3.2 percent from June of 2007 and fell 1.7 percent from last July. For the seven months, shipments were down 5.5 percent. Orders for the seven months were down 3.9 percent. Summary: It seems like every month lately has been somewhat the same ole story, other than the effects in April and May of market orders. Having finished the Vegas market, Tupelo and the “new” pre-market, the reports indicated reasonably good moods considering how slow business seems to be at retail. As is usually the case, there are winners and losers but there are always those glass half full—half empty people no matter what happens. One story we heard was that one exhibitor at pre-market noted that he was not happy with it at all in a conversation with another exhibitor. He asked the exhibitor he was talking to his thoughts on it. The half full guy said he was very happy with it and named all the customers he had seen. The half empty guy then supposedly said something like, well I saw those same people so mine must not have been as bad as I thought. You gotta love market talk—whether High Point, Tupelo, Vegas or any other. Let’s hope business picks up a bit over Labor Day and on up to the October market so that mood at market will remain good, at least for the half full guys and gals.

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