Current Issue

US: OUT INTO THE LIGHT

By Smith Leonard PLLC

For the third consecutive month, new orders in January increased over the same month a year ago. After two years of significantly declining order rates, this news has been good news.

“CERTAINLY, WE ARE not making up much ground, but with some stabilisation, this is allowing companies to at least attempt to adjust to current levels versus wondering how low it can go.

The news we heard from pre-market was mostly very good. The retailers who came seemed to feel that business was improving – maybe not where they want it, but improving. As we mentioned before, we believe the weather has clearly been a factor for most of this winter. Snow, rain, floods – you name it, we have had more than normal in most areas of the country.

Hopefully as spring has come, consumer’s attitudes will improve – in spite of the mess in Washington. We also have heard from other retailers that business continues to improve. We hope that trend continues and should make for a good High Point Market,” said Kenneth D Smith (CAP) Managing Partner, Furniture Team, Smith Leonard PLLC.manufacturing industry employment.

NEW ORDERS

January 2010 new orders were positive again compared to January 2009, according to the latest survey of residential furniture manufacturers and distributors. While not quite as positive as the November and December 2009 results, at least they were positive, showing a four percent increase over January 2009.

We believe January results were negatively impacted by bad weather in January and we expect February results to also be affected. This was a terrible winter weather-wise, especially in the Mid Atlantic and Northeast sections of the country. Some 59 percent of the participants reported increased orders down slightly from 62 percent in December. The 59 percent is still a long way from 20 percent of the participants in August. Shipments and Backlogs Shipments in January were six percent higher than January 2009, following a three percent increase in December.

Shipments in January were 10 percent lower than December 2009, but that was somewhat normal in the January to December comparisons. Approximately 62 percent of the participants reported increased shipments in January up from approximately 50 percent in December.

Backlogs were four percent higher than December and 26 percent higher than January 2009. This was the fourth month in a row that backlogs have increased over the prior year. We realise that some of this relates to imports and the time it takes to get through the system, but it is good to see backlogs increasing at least somewhat.

Receivables and Inventories

Receivables were four percent lower than January 2009 even with shipments increasing six percent in January. Receivables increased one percent over December in spite of a 10 percent decline in shipments.

We continue to hear about slower paying customers, but we are also hearing more about requiring deposits, especially in the custom order business. We did have a few bankruptcies and going out of business situations in 2009. Hopefully, no more significant ones are on the horizon.

Inventories increased 10 percent over December 2009 but were still 21 percent lower than January 2009. A number of companies took some down time in December and many did not accept new inventory until after the first of the year.

We continue to believe that inventories are in pretty good shape, especially after the last two years of heavy discounting in order to move slow moving and obsolete items.

In addition, we have noted that companies are keeping a close eye on raw materials, for those who are still manufacturing.

National Consumer Confidence

According to the Conference Board, the Consumer Confidence Index, which rebounded in March from February. The
Lynn Franco, Director of The Conference Board Consumer Research Centre said: “Consumer Confidence, which had declined sharply in February, managed to recoup most of the loss in March. However, despite this month’s increase, consumers continue to express concern about current business and labour market conditions. And, their outlook for the next six months is still rather pessimistic. Overall, consumer confidence levels have not changed significantly since last spring.”

According to the report, consumers’ short-term outlook improved in March. Those anticipating conditions will worsen over the next six months declined to 13.9 percent from 15.9 percent, while those anticipating an improvement increased to 18.3 percent from 16.1 percent. Regarding the outlook for the labour market, the percentage of consumers expecting fewer jobs in the months ahead decreased to 21.6 percent from 24.7 percent. Those anticipating more jobs will become available increased to 14.6 percent from 13.2 percent. The proportion of consumers anticipating an increase in their incomes improved to 10.5 percent from 10.1 percent.

Housing: Existing-Home Sales

Existing-home sales declined slightly in February, with modest gains in the Northeast and Midwest offset by softer sales in the South and West, according to the National Association of Realtors (NAR). Existing-home sales which include single-family, town homes, condominiums and co-ops, slipped 0.6 percent nationally to a seasonally adjusted annual rate of 5.02 million units in February from 5.05 million in January, but are 7.0 percent higher than the 4.69 million-unit pace in February 2009.

The median existing single-family home price was US$164,300 in February, down 2.1 percent from February 2009.

Lawrence Yun, NAR chief economist, said widespread winter storms in February may mask underlying demand. “Some closings were simply postponed by winter storms, but buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity,” he said.

He also noted: “Although sales have been higher than year-ago levels for eight straight months and home prices are much more stable compared to the past few years, the housing recovery is fragile at the moment.”

Total housing inventory at the end of February rose 9.5 percent to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January. Raw unsold inventory is 5.5 percent below a year ago.

Regionally, existing-home sales in the Northeast rose 2.4 percent to an annual pace of 840,000 in February and are 12.0 percent above a year ago.

Existing-home sales in the Midwest increased 2.8 percent in February to a level of 1.11 million and are 8.8 percent higher than February 2009. The median price in the Midwest was $128,000, which is two percent below a year ago.

In the South, existing-home sales slipped 1.1 percent to an annual pace of 1.85 million in February but are 6.9 percent above a year ago. The median price in the South was $139,600, down 4.2 percent from February 2009.

Existing-home sales in the West fell 4.7 percent to an annual rate of 1.22 million in February but are 3.4 percent higher than February 2010. The median price in the West was $207,900, down 9.8 percent from a year ago.

Housing: New Residential Sales

According to estimates by the US Census Bureau and the Department of Housing and Urban Development, the sales of new single-family houses in February 2010 were at a seasonally adjusted annual rate of 308,000. This is 2.2 percent below the revised January rate of 315,000 and is 13.0 percent below the February 2009 estimate of 354,000.

The median sales price of new houses sold in February 2010 was $220,500; the average sales price was $282,600. The seasonally adjusted estimate of new houses for sale at the end of February was 236,000. This represents a supply of 9.2 months at the current sales rate. Sales of new residential houses were flat in the Northeast and down 18 percent in the Midwest, down 29.5 percent in the South and down 34.8 percent in the West compared to February 2009.

Retails

Sales at furniture and home furnishings stores were 2.1 percent lower than February 2009 on an adjusted basis. Year-to-date, sales at these stores were 3.3 percent below the first two months of 2009.