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US: Furniture Insights

The results in September were, while down as expected, showed some signs of progress with the number of participants reporting increased orders for July over July 2008 improving to 27 percent up from 15 percent last month. Inventories at retail are low and floor samples need replacing. Smith Leonard PLLC’s Furniture team explains more in this excerpt.

New Orders

New orders for residential furniture manufacturers and distributors in July 2009 were 16 percent lower than July 2008. The 16 percent decline was the same as the 16 percent decline reported in the June 2009 versus June 2008 comparison. July 2008 orders were 10 percent below June 2007. According to the survey some 73 percent of the participants reported lower orders. This means, for some good news, 27 percent reported higher orders than last year. This compares to the 15 percent reporting increases last month.

Year-to-date, new orders remained 20 percent lower than last year’s first seven months, the same as the results in June. For the year-to-date, 93 percent are reporting lower orders, the same as last month.

Shipments and Backlogs

Shipments in July were 19 percent lower than July 2008, the same as reported last month. Shipments were 18 percent lower than June, but that is normal with the combination of July normally being a slower sales month plus most participants taking off at least a week for the July 4 vacation.

Year-to-date, shipments remained 20 percent lower than last year. July 2008 shipments were eight percent lower than the first seven months of 2007.

Backlogs were actually up six percent over June and are now only 13 percent below last year. This compared to a 21 percent decline comparing June 2009 to June 2008.

Receivables and Inventories

Surprisingly, receivable levels fell 25 percent from July 2008 levels, a bit more than expected. But, receivables were down 10 percent from June 2009, even with 18 percent decline in shipments, month over month. Most likely, some of these results were related to timing of shipments and collections.

Inventories were flat compared to June levels but were 22 percent lower than July 2008. It appears that there has been a lot of focus on lowering inventories to create or conserve cash or reduce borrowing levels.

Factory and Warehouse Employees and Payrolls

The number of factory and warehouse employees was 20 percent lower than in July 2008 and fell one percent from June levels. In June, the numbers were 19 percent lower than the year before. It appears that companies are continuing to adjust the number of employees to current volume levels.

Payrolls were 17 percent lower than July 2008, again reflecting vacation schedules. Payrolls year-to-date were 22 percent lower than the same period a year ago, down slightly from 23 percent last month.

Consumer Confidence

The Conference Board Consumer Confidence Index, which had improved in August, slipped slightly in September. The Index now stands at 53.1 (1985=100), down from 54.5 in August. The Present Situation Index decreased to 22.7 from 25.4. The Expectations Index declined to 73.3 from 73.8 last month.

Lynn Franco, Director of The Conference Board Consumer Research Center said: “... as consumers viewed both current business conditions and the labour market less favourably than last month. While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes. With the holiday season quickly approaching, this is not very encouraging news.”

Consumers’ assessment of current conditions was less favourable in September. Those claiming business conditions are “bad” increased to 46.3 percent from 44.6 percent, while those claiming conditions are “good” increased to 8.7 percent from 8.5 percent. Consumers’ appraisal of the job market was also less favourable. Those claiming jobs are “hard to get” increased to 47 percent from 44.3 percent, while those claiming jobs are “plentiful” decreased to 3.4 percent from 4.3 percent.

Consumers’ short-term outlook was also slightly more pessimistic. Those anticipating an improvement in business conditions over the next six months decreased to 21.3 percent from 22.2 percent, while those expecting conditions to worsen decreased to 15 percent from 15.2 percent.

Reuters/University of Michigan Survey

The Reuters/University of Michigan Surveys of Consumers was a bit more optimistic.

According to this survey, consumers the dismal state of their own finances.” “Consumers were more optimistic about prospects for the national economy, inflation, and the unemployment rate, although most consumers thought their own finances would remain problematic for some time,” said Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers.

Curtin pegged the growth of total personal consumption expenditures at just 1.6 percent during 2010, well below the typical rebound in spending during the first year following a recession.

The Index of Consumer Sentiment was 73.5 in the September 2009 survey, up from 65.7 in August, reversing the entire decline since last September and rising to the highest level since the start of 2008. The Index of Consumer Expectations was 73.5 in September, up from 65 in August, and the highest level recorded since the September 2007 survey.

The key factor that will hold back the usual upsurge in consumer spending is the dismal state of consumer finances. “A majority of consumers judged their finances to have worsened in each of the past 12 months, with a record number of consumers reporting income declines in September,” according to Curtin. Six-in-ten families expected no income increases at all. Even lower inflation did not brighten real income prospects as just 13 percent expected inflation-adjusted income increases during the year ahead. Moreover, declines in home values, pension and investment accounts has made even those who have not suffered income declines more cautious spenders. The desire to decrease their debt and increase their savings remains the dominate motivation of nearly all consumers.

Home Sales

Existing-home sales in August gave back some of their strong gain in July but remain above year-ago levels, according to the National Association of Realtors (NAR).

Single-family home sales fell 2.8 percent to a seasonally adjusted annual rate of 4.48 million in August from a level of 4.61 million in July, but are 2.5 percent higher than the 4.37 million-unit pace in August 2008.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – declined 2.7 percent to a seasonally adjusted annual rate of 5.1 million units in August from a pace of 5.24 million in July, but remain 3.4 percent above the 4.93 million-unit level in August 2008. In the previous four months, sales had risen a total of 15.2 percent.

An NAR practitioner survey shows first-time buyers purchased 30 percent of homes in August, and that distressed homes accounted for 31 percent of transactions; both were unchanged from July.

Sales of new one-family houses in August 2009 were at a seasonally adjusted annual rate of 429,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent above the revised July rate of 426,000, but is 3.4 percent below the August 2008 estimate of 444,000.

According to the US Census Bureau, privately-owned housing starts in August were 1.5 percent above the revised July estimate, but is 29.6 percent below the August 2008 rate of 849,000.

Single-family housing starts in August were three percent below the revised July figure of 494,000. Single-family housing starts in July were 1.7 percent above the revised June figure of 482,000.

Retail Sales

The US Census Bureau reported that advance estimates of US retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were US$351.4 billion, an increase of 2.7 percent from the previous month, but 5.3 percent below August 2008. Total sales for the June through August 2009 period were down 7.6 percent from the same period a year ago.

Retail trade sales were up three percent from July 2009, but six percent below last year. Gasoline stations sales were down 26.7 Sales at furniture and home furnishings stores were down 12.8 percent in August from August 2008. Year-to-date, sales at these stores were down 13.7 percent, similar to last month’s 13.6 percent.

Durable Goods Orders and Factory Shipments

According to the US Census Bureau, shipments of all furniture and related products were down 18.8 percent in July versus July 2008. Shipments in this category year-to-date were off 20.5 percent, similar to our survey. Orders were also off 20.9 percent.

ABOUT THE AUTHOR

The original report appears in full in the monthly newsletter – Furniture Insights, which is supplied by Smith Leonard Accountants & Consultants. It tracks key data; and annually produces key operating statistics and analysis for manufacturers and distributors.

Smith Leonard PLLC and its Furniture Team attend furniture markets and other industry related events frequently. They are active members of the American Home Furnishings Alliance and work with the National Home Furnishings Association, the Furniture Manufacturers Credit Association, the Piedmont Triad Partnership Furniture Council and the High Point Market Authority.

With its headquarters in High Point, North Carolina, the firm offers a full range of accounting and consulting services.