March 2024 Furniture Insights Report From Smith Leonard

Furniture World News Desk on 4/3/2024

MONTHLY RESULTS

New Orders

According to our latest survey of residential furniture manufacturers and distributors, new orders were down (1)% in January 2024 compared to January 2023 breaking our streak of 8 straight months with order growth over the prior year. Approximately half of the participants reported increased orders in January 2024 compared to a year ago. However, new orders were up 7% over December 2023, which would be expected after returning from the holidays.

Shipments and Backlogs

Shipments in January 2024 were down (13)% from January 2023, which is consistent with the (14)% decline last month and the (17)% annual decline we saw in 2023 compared to 2022. However, shipments were up 2% over December 2023 after returning from the holiday break. Shipments in January 2024 were down for approximately three-fourths of the participants compared to January 2023. So despite recent improvement in new orders overall, trends continue to be affected by many companies shipping from their historically high backlogs through much of 2022 into early 2023. And with month-over-month orders declining and shipments up slightly, January 2024 backlogs were down (1)% from December 2023 and down (27)% compared to January 2023.

Receivables and Inventories

Receivable levels were up 6% from December 2023, which is likely a function of timing around the holidays. However, receivable levels were down (12)% from January 2023, which is materially in line with the decline in shipments.

Inventories were down slightly from December 2023 and were down (28)% from January 2023, again indicating that most companies have rebalanced their inventory levels to match current operations.

Factory and Warehouse Employees and Payroll

The number of factory and warehouse employees was down (7)% from January a year ago and materially flat with December 2023, again indicating most companies have right-sized their teams, though most are still eager to add good people when available.

NATIONAL

Consumer Confidence

The Conference Board Consumer Confidence Index® was 104.7 (1985=100) in March, essentially unchanged from a downwardly revised 104.8 in February.

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—increased to 151.0 (1985=100) in March from 147.6 in February. Meanwhile, the Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 73.8 (1985=100), down from 76.3 last month. An Expectations Index reading below 80 often signals a forthcoming recession.

“Consumers’ assessment of the present situation improved in March, but they also became more pessimistic about the future,” said Dana M. Peterson, Chief Economist at The Conference Board. “Confidence rose among consumers aged 55 and over but deteriorated for those under 55. Separately, consumers in the $50,000-$99,999 income group reported lower confidence in March, while confidence improved slightly in all other income groups. However, over the last six months, confidence has been moving sideways with no real trend to the upside or downside either by income or age group.”

Peterson added: “Consumers remained concerned with elevated price levels, which predominated write-in responses. March’s write-in responses showed an uptick in concerns about food and gas prices, but in general complaints about gas prices have been trending downward. Indeed, average 12-month inflation expectations came in at 5.3%—barely changed from February’s four-year low of 5.2%. Recession fears continued to trend downward both in write-in responses and as measured by consumers’ Perceived Likelihood of a US Recession over the Next 12 Months. Meanwhile, consumers expressed more concern about the US political environment compared to prior months.”

Assessments of the present situation improved in March, primarily driven by more positive views of the current employment situation. Notably, the employment differential—those saying jobs are plentiful minus those saying jobs are hard to get—rose in March and has been trending higher this year.

However, expectations for the next six months slipped to the lowest level since October 2023. Consumers’ outlook for future business conditions, labor market conditions, and income expectations all deteriorated in March. They were also a bit less optimistic about their family’s financial situation, both currently and over the next six months (measures not included in calculating the Expectations Index).

Sentiment about stock prices over the year ahead continued to strengthen. The share of consumers expecting an increase in interest rates over the year ahead rose above 50% for the first time since November 2023. On a six-month basis, buying plans for interest-rate sensitive items like autos, homes, and big-ticket appliances dipped again. However, based on a supplemental question, planned spending for services in 2024 increased relative to the same time last year. Among services, consumers anticipate spending more on health care, motor vehicle services, and lodging for personal travel, but less on entertainment.

Present Situation
Consumers’ assessment of current business conditions fell slightly in March.

• 19.5% of consumers said business conditions were “good,” down from 20.4% in February.
• 17.2% said business conditions were “bad,” down from 17.7%.

Consumers’ appraisal of the labor market was more positive in March.

• 43.1% of consumers said jobs were “plentiful,” up from 42.8% in February
• 10.9% of consumers said jobs were “hard to get,” down from 12.7%

Expectations Six Months Hence
Consumers more pessimistic overall about the short-term business conditions outlook in March.

• 14.3% of consumers expect business conditions to improve, up from 14.0% in February.
• 17.6% expect business conditions to worsen, up from 16.9%

Consumers’ assessment of the short-term labor market outlook was more pessimistic in March

• 13.9% of consumers expect more jobs to be available, down from 14.1% in February.
• 18.2% anticipate fewer jobs, up from 17.5%

Consumers’ assessment of their short-term income prospects was, on balance, also more pessimistic in March.

• 16.5% of consumers expect their incomes to increase, up slightly from 16.3% in February
• However, 13.8% expect their incomes to decrease, up from 11.9%.

Assessment of Family Finances and Recession Risk

• Consumers’ assessment of their Family’s Current Financial Situation was less positive in March.
• Consumers were a bit less optimistic about their Family’s Financial Situation going forward.
• Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months declined in March—continuing its downward trajectory after a brief uptick last month.

Leading Economic Indicators

The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 0.1% in February 2024 to 102.8 (2016=100), following a 0.4% decline in January. Over the six-month period between August 2023 and February 2024, the LEI contracted by 2.6%—a smaller decrease than the 3.8% decline over the previous six months.

“The U.S. LEI rose in February 2024 for the first time since February 2022,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Strength in weekly hours worked in manufacturing, stock prices, the Leading Credit Index , and residential construction drove the LEI’s first monthly increase in two years. However, consumers’ expectations and the ISM® Index of New Orders have yet to recover, and the six- and twelve-month growth rates of the LEI remain negative. Despite February’s increase, the Index still suggests some headwinds to growth going forward. The Conference Board expects annualized US GDP growth to slow over the Q2 to Q3 2024 period, as rising consumer debt and elevated interest rates weigh on consumer spending.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. rose by 0.2% in February 2024 to 112.3 (2016=100), after a 0.1% increase in January. The CEI rose 1.1% over the six-month period ending February 2024, up from 0.8% over the previous six months. The CEI’s component indicators—payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production—are included among the data used to determine recessions in the US. All four components of the index were positive last month, with personal income less transfer payments and payroll employment having the strongest contributions to the Index.

The Conference Board Lagging Economic Index® (LAG) for the U.S. rose by 0.3% in February 2024 to 118.8 (2016 = 100), after a 0.3% increase in January. The LAG is up by 0.8% over the six- month period from August 2023 to February 2024, after recording no growth over the previous six months.

Gross Domestic Product

Real gross domestic product (GDP) increased at an annual rate of 3.4% in the fourth quarter of 2023, according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.9%.

The increase in real GDP primarily reflected increases in consumer spending, state and local government spending, exports, nonresidential fixed investment, federal government spending, and residential fixed investment that were partly offset by a decrease in private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

Compared to the third quarter of 2023, the deceleration in real GDP in the fourth quarter primarily reflected a downturn in private inventory investment and slowdowns in federal government spending and residential fixed investment. Imports decelerated.

HOUSING

Existing-Home Sales

Existing-home sales climbed in February, according to the National Association of REALTORS®. Among the four major U.S. regions, sales jumped in the West, South and Midwest, and were unchanged in the Northeast. Year- over-year, sales declined in all regions.

Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – bounced 9.5% from January to a seasonally adjusted annual rate of 4.38 million in February. Year- over-year, sales slid 3.3% (down from 4.53 million in February 2023).

Single-family home sales grew to a seasonally adjusted annual rate of 3.97 million in February, up 10.3% from 3.6 million in January but down 2.7% from the previous year. The median existing single-family home price was $388,700 in February, up 5.6% from February 2023.

At a seasonally adjusted annual rate of 410,000 units in February, existing condominium and co-op sales increased 2.5% from last month but declined 8.9% from one year ago (450,000 units). The median existing condo price was $344,000 in February, up 6.7% from the previous year ($322,400).

"Additional housing supply is helping to satisfy market demand," said NAR Chief Economist Lawrence Yun. "Housing demand has been on a steady rise due to population and job growth, though the actual timing of purchases will be determined by prevailing mortgage rates and wider inventory choices."

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.74% as of March 14. That's down from 6.88% the prior week but up from 6.60% one year ago.

Total housing inventory registered at the end of February was 1.07 million units, up 5.9% from January and 10.3% from one year ago (970,000). Unsold inventory sits at a 2.9-month supply at the current sales pace, down from 3.0 months in January but up from 2.6 months in February 2023.

The median existing-home price for all housing types in February was $384,500, an increase of 5.7% from the prior year ($363,600). All four U.S. regions posted price increases.

According to the monthly REALTORS® Confidence Index, properties typically remained on the market for 38 days in February, up from 36 days in January and 34 days in February 2023.

First-time buyers were responsible for 26% of sales in February, down from 28% in January and 27% in February 2023. NAR's 2023 Profile of Home Buyers and Sellers – released in November 2023 – found that the annual share of first-time buyers was 32%.

Regional

At 480,000 units, existing-home sales in the Northeast were identical to January but down 7.7% from February 2023. It's the fourth consecutive month that home sales in the Northeast registered 480,000 units. The median price in the Northeast was $420,600, up 11.5% from one year ago.

In the Midwest, existing-home sales propelled 8.4% from one month ago to an annual rate of 1.03 million in February, down 3.7% from the previous year. The median price in the Midwest was $277,600, up 6.8% from February 2023.

At 480,000 units, existing-home sales in the Northeast were identical to January but down 7.7% from February 2023. It's the fourth consecutive month that home sales in the Northeast registered 480,000 units. The median price in the Northeast was $420,600, up 11.5% from one year ago.

In the Midwest, existing-home sales propelled 8.4% from one month ago to an annual rate of 1.03 million in February, down 3.7% from the previous year. The median price in the Midwest was $277,600, up 6.8% from February 2023.

In the Midwest, existing-home sales propelled 8.4% from one month ago to an annual rate of 1.03 million in February, down 3.7% from the previous year. The median price in the Midwest was $277,600, up 6.8% from February 2023.

In the West, existing-home sales skyrocketed 16.4% from a month ago to an annual rate of 850,000 in February, a decline of 1.2% from the prior year. The median price in the West was $593,000, up 9.1% from February 2023.

"Due to inventory constraints, the Northeast was the regional underperformer in February home sales but the best performer in home prices," Yun added. "More supply is clearly needed to help stabilize home prices and get more Americans moving to their next residences."

New Residential Sales

Sales of new single‐family houses in February 2024 were at a seasonally adjusted annual rate of 662,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.3% below the revised January rate of 664,000, but is 5.9% above the February 2023 estimate of 625,000.

The median sales price of new houses sold in February 2024 was $400,500. The average sales price was $485,000. The median sales price of new houses sold in January 2024 was $420,700. The average sales price was $534,300.

The seasonally‐adjusted estimate of new houses for sale at the end of February was 463,000. This represents a supply of 8.4 months at the current sales rate (8.3 months in January 2024).

Compared to February 2023 on a seasonally-adjusted basis, sales were up 5.9% overall with sales up 60.9% in the Northeast, 15.3% in the Midwest, 43.4% in the West, and down (10.0)% in the South.

Housing Starts

Privately‐owned housing starts in February were at a seasonally adjusted annual rate of 1,521,000. This is 10.7% above the revised January estimate of 1,374,000 and is 5.9% above the February 2023 rate of 1,436,000.

Single‐family housing starts in February were at a rate of 1,129,000; this is 11.6% above the revised January figure of 1,012,000.

The February rate for units in buildings with five units or more was 377,000 (314,000 in January)

Single-family starts compared to February 2023, on a seasonally-adjusted basis, were up 35.2% in total and also up 32.9% in the South, 80.5% in the Midwest, 23.6% in the West and 23.2% in the Northeast.

Housing Completions

Privately‐owned housing completions in February were at a seasonally adjusted annual rate of 1,729,000. This is 19.7% above the revised January estimate of 1,445,000 and is 9.6% above the February 2023 rate of 1,577,000.

Single‐family housing completions in February were at a rate of 1,072,000; this is 20.2% above the revised January rate of 892,000.

The February rate for units in buildings with five units or more was 644,000 (538,000 in January).

Single-family completions compared to February 2023, on a seasonally-adjusted basis, were up 4.2% in total and also up 1.8% in the South, 30.6% in the Midwest, 4.7% in the Northeast, but down (4.1)% in the West.

OTHER NATIONAL

Retail Sales

Advance estimates of U.S. retail and food services sales for February 2024, adjusted for seasonal variation and holiday and trading- day differences, but not for price changes, were $700.7 billion, up 0.6% from the previous month, and up 1.5% above February 2023. Total sales for the December 2023 through February 2024 period were up 2.1% from the same period a year ago. The December 2023 to January 2024 percent change was revised from down 0.8% to down 1.1%.

Retail trade sales were up 0.6% from January 2024, and up 0.8% above last year. Nonstore retailers were up 6.4% from last year, while food services and drinking places were up 6.3% from February 2023.

Sales at furniture and home furnishings stores were down 1.1% in February 2024 from January 2024 on a seasonally-adjusted basis, and down 10.1% from February 2023.

Consumer Prices

The Consumer Price Index for All Urban Consumers increased 0.4% in February on a seasonally adjusted basis, after rising 0.3% in January, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all-items index increased 3.2% before seasonal adjustment.

The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over sixty percent of the monthly increase in the index for all-items. The energy index rose 2.3% over the month, as all of its component indexes increased. The food index was unchanged in February, as was the food at home index. The food away from home index rose 0.1% over the month.

The index for all items less food and energy rose 0.4% in February, as it did in January. Indexes which increased in February include shelter, airline fares, motor vehicle insurance, apparel, and recreation. The index for personal care and the index for household furnishings and operations were among those that decreased over the month.

The all-items index rose 3.1% for the 12 months ending January, a smaller increase than the 3.4% increase for the 12 months ending December. The all-items less food and energy index rose 3.9% over the last 12 months, the same increase as for the 12 months ending December. The energy index decreased 4.6% for the 12 months ending January, while the food index increased 2.6% over the last year.

Employment

Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9%, the U.S. Bureau of Labor Statistics reported. Job gains occurred in health care, government, food services and drinking places, social assistance, and transportation and warehousing.

The unemployment rate rose by 0.2 percentage point to 3.9% in February, and the number of unemployed people increased by 334,000 to 6.5 million. A year earlier, the jobless rate was 3.6%, and the number of unemployed people was 6.0 million.

 

Durable Goods Orders and Factory Shipments

New orders for manufactured durable goods in December, down two of the last three months, decreased less than $0.1 billion or virtually unchanged to $295.4 billion, down from the previously published virtually unchanged increase. This followed a 5.4% November increase. Transportation equipment, also down two of the last three months, drove the decrease, $1.0 billion or 0.9% to $106.8 billion. New orders for manufactured nondurable goods increased $1.2 billion or 0.4% to $298.9 billion.

Shipments of manufactured durable goods in February, up following two consecutive monthly decreases, increased $3.5 billion or 1.2% to $282.7 billion. This followed a 0.8% January decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $3.4 billion or 4.0% to $89.8 billion.

On a seasonally-adjusted basis, orders for furniture and related products were up 1.4% compared to the prior month with shipments down 2.2%.

Executive Summary

New orders were down (1)% in January 2024 compared to January 2023 breaking our streak of 8 straight months with order growth over the prior year. However, new orders were up 7% over December 2023.

Shipments in January 2024 were down (13)% from January 2023, which is consistent with the (14)% decline last month and the (17)% annual decline we saw in 2023 compared to 2022. However, shipments were up 2% over December 2023 after returning from the holiday break. And with month-over-month orders declining and shipments up slightly, January 2024 backlogs were down (1)% from December 2023 and down (27)% compared to January 2023.

Receivable levels were up 6% from December 2023, which is likely a function of timing around the holidays. However, receivable levels were down (12)% from January 2023, which is materially in line with the decline in shipments.

Inventories and employee levels are again in line with recent months, but down from January 2023, indicating that companies have substantially adjusted levels to match current operations.

National

Consumer Confidence

The Conference Board Consumer Confidence Index® was 104.7 in March, essentially unchanged from a downwardly revised 104.8 in February.

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—increased to 151.0 in March from 147.6 in February.

Meanwhile, the Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 73.8, down from 76.3 last month. An Expectations Index reading below 80 often signals a forthcoming recession.

Sentiment about stock prices over the year ahead continued to strengthen. The share of consumers expecting an increase in interest rates over the year ahead rose above 50% for the first time since November 2023. On a six-month basis, buying plans for interest-rate-sensitive items like autos, homes, and big-ticket appliances dipped again. However, based on a supplemental question, planned spending for services in 2024 increased relative to the same time last year. Among services, consumers anticipate spending more on health care, motor vehicle services, and lodging for personal travel, but less on entertainment.

Housing

Existing-home sales climbed in February, according to the National Association of REALTORS®. Among the four major U.S. regions, sales jumped in the West, South, and Midwest, and were unchanged in the Northeast. Year-over-year, sales declined in all regions. Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – bounced 9.5% from January to a seasonally adjusted annual rate of 4.38 million in February. Year-over-year, sales slid 3.3% (down from 4.53 million in February 2023).

Single-family home sales grew to a seasonally adjusted annual rate of 3.97 million in February, up 10.3% from 3.6 million in January but down 2.7% from the previous year. The median existing single-family home price was $388,700 in February, up 5.6% from February 2023.

At a seasonally adjusted annual rate of 410,000 units in February, existing condominium and co-op sales increased 2.5% from last month but declined 8.9% from one year ago (450,000 units). The median existing condo price was $344,000 in February, up 6.7% from the previous year ($322,400).

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.74% as of March 14. That’s down from 6.88% the prior week but up from 6.60% one year ago.

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.77% as of February 15. That’s up from 6.64% the previous week and 6.32% one year ago.

Sales of new single‐family houses in February 2024 were at a seasonally adjusted annual rate of 662,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.3% below the revised January rate of 664,000 but is 5.9% above the February 2023 estimate of 625,000.

Compared to February 2023 on a seasonally adjusted basis, sales were up 5.9% overall with sales up 60.9% in the Northeast, 15.3% in the Midwest, 43.4% in the West, and down (10.0)% in the South.

Other

Real gross domestic product (GDP) increased at an annual rate of 3.4% in the fourth quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.9%.

The increase in real GDP primarily reflected increases in consumer spending, state and local government spending, exports, nonresidential fixed investment, federal government spending, and residential fixed investment which were partly offset by a decrease in private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

Sales at furniture and home furnishings stores were down 1.1% in February 2024 from January 2024 on a seasonally-adjusted basis, and down 10.1% from February 2023.

Thoughts

Consumer sentiment related to the current economic environment remained largely unchanged from the prior month. And despite diminishing concerns about inflation and the likelihood of a widespread recession, the general outlook for the remainder of the year has deteriorated due to concerns about future business conditions, jobs, and the political environment, among other things. Some of these negative sentiments seem to be playing into what we’re seeing with new order trends in our monthly year-over-year stats recently.

But at the same time, the housing market continues to show signs of life despite the elevated interest rate environment. Perhaps buyers have finally accepted this new normal and gotten on with life. Hopefully this activity, along with the expected interest rate cuts from the Fed in the second half of the year, will spur additional housing and furniture sales.

We look forward to seeing many of you at the High Point Spring Market in a few weeks.

 

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: ksmith@smithleonardcpas.com.