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US: Furniture Insights

The American furniture industry may be beginning to see the bottom and the faint signs of recovery ahead of that. Although home sales are up, consumer confidence remains low, according to a report by Smith Leonard PLLC’s Furniture team. Excerpts:

“As we expected, the results for May remained off significant double digits even with some comparison issues related to timing of the Market. There appeared to be some good news from some folks in early June, but there has been no consistency in any forward momentum.

It does seem to feel like we are maybe beginning to see the bottom, yet we are not totally ready to call that yet. Consumer confidence sliding two months in a row is not helping matters especially as it relates to the industry.

The good news is that the stock market is doing better. That is certainly a good thing. It seems that second quarter reports were better than expected and that is also good. Hopefully, Congress and the White House will slow down a bit and let the public catch up with the fact that all the news is not awful and regain some confidence. As we have noted before, starting with June results, we will begin comparisons to last year when we first started reporting double-digit declines. Once we start those comparisons over the next few months, we should be able to tell if we really have reached the bottom or at least feel that we are near it.

On a lighter note, we did hear from one manufacturer/distributor (second hand) who was talking about how bad his business was. He noted that even his customers, who do not intend to pay, were not even placing orders. As we finish off the summer and head into a better selling season, let’s hope the economy, in general, continues to improve... If we can quit saying the R word, consumers’ attitudes will improve. Then, after getting comfortable that they have confidence that the worst is over, they will hit the furniture stores again.”

New Orders

In May 2009, new orders were 17 percent lower than orders in May 2008, according to our most recent survey of residential furniture manufacturers and distributors. New orders in May were nine percent higher than April orders. In April, new orders were off 27 percent from April 2008. We noted that there was likely an effect of the April High Point Furniture Market being held in late April 2009 versus earlier in April 2008. We believed that some orders did not get booked until May in 2009. If we add April and May orders for both years, the decline was 22 percent, which is in line with the previous months.

Approximately 83 percent of the participants reported lower order rates for the month. This compares to 92 percent of the participants last month. Year-to-date, new orders are down 21 percent, down slightly from the 22 percent reported last month. Approximately 93 percent of the participants have reported lower orders year-to-date versus last year, the same as we reported last month.

According to the US Census Bureau, orders for furniture and related products were down 19 percent comparing May 2009 to May 2008. Year-to-date, orders were reported to be down 19.7 percent. Shipments in this category were down 22 percent with year-to-date shipments reported off 20.5 percent.

Shipments And Backlogs

Shipments in May were down 19 percent compared to May 2008. This compares to a 21 percent decline comparing April 2009 to April 2008. Approximately 83 percent of the participants reported lower shipment levels in May 2009 versus May a year ago. This compared to 90 percent of the participants last month. Year-to-date, shipments remained 21 percent lower than the first five months of 2008. Backlogs were down 24 percent compared to May 2008. Last month, backlogs were down 26 percent so there was a slight improvement in these levels.

National Consumer Confidence

After a decline in June, The Conference Board Consumer Confidence Index™, declined further in July.

Lynn Franco, Director of The Conference Board Consumer Research Centre said: “Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months. The decline in the Present Situation Index was caused primarily by a worsening job market, as the percentage of consumers claiming jobs are hard to get rose sharply. The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labour market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further. However, more consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead.”

Consumers continued to rate current conditions unfavourably in July. Those saying business conditions are “bad” increased to 46.3 percent, however, those saying conditions are “good” increased to 9.1 percent. Consumers’ assessment of the labour market deteriorated further. Those claiming jobs are “hard to get” increased to 48.1 percent, while those claiming jobs are “plentiful” decreased to 3.6 percent.

Overall, consumers remain quite pessimistic about the short-term outlook. The percentage of consumers anticipating an improvement in business conditions over the next six months decreased to 18 percent, however, those expecting conditions to worsen decreased to 18.9 percent.

Similar results came from the Reuters/University of Michigan Surveys of Consumers. According to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers: “While consumers believe the economic free-fall is now over, consumers see little reason to believe that the economic stimulus package will improve their finances anytime soon. It is difficult to determine whether the recent loss in confidence simply reflects the impatience of consumers or the sprouting of changed assessments of the effectiveness of the stimulus policies”.

In either event, “economic apprehensions can be expected to increase along with rising unemployment and stagnant incomes during the months ahead,” according to Curtin. Although consumer spending will improve during the balance of 2009, total personal consumption expenditures will post a lacklustre increase of 1.5 percent during 2010, according to the report.

Recent income gains were reported by the fewest consumers in the more than 60-year history of the survey. Moreover, a worsening financial situation was reported by the majority of consumers, and these financial reversals were as common among upper as lower income households. Financial prospects for the year ahead were equally gloomy across all income groups. Expected income gains were barely positive, with the expected annual income increase barely above zero – just two-tenths of a percentage point.

Leading Economic Indicators

The Conference Board Leading Economic Index™ (LEI) for the US increased 0.7 percent in June, following a 1.3 percent gain in May, and a one-percent rise in April.

Ken Goldstein, Economist at The Conference Board said: “The recession has been losing steam since the spring, although very large job losses continue. Nevertheless, confidence is slowly rebuilding. Financial markets are less volatile. Even the housing market is stabilising. If these trends continue, expect a slow recovery this autumn.”

Housing Existing-Home Sales

According to the National Association of Realtors® (NAR), existing-home sales rose for the third consecutive month with inventory easing and home prices declining less sharply in June.
Single-family home sales rose 2.4 percent in June, and are 0.2 percent higher than the 4.31 million-unit pace a year ago.

Existing-home sales – including single family, town homes, condominiums and coops – increased 3.6 percent to a seasonally adjusted annual rate of 4.89 million units in June from a downwardly revised pace of 4.72 million in May, but are 0.2 percent lower than the 4.90 million-unit level in June 2008.

Lawrence Yun, NAR chief economist, was hopeful about the gain. “The increase in existing-home sales occurred in all major regions of the country,” he said. “We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions...”

New Residential Sales

Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly by the US Census Bureau and the Department of Housing and Urban Development. This was 11 percent above the revised May rate of 346,000, but was 21.3 percent below the June 2008 estimate of 488,000.

Retail Sales

Sales at furniture and home furnishings stores were down only 0.2 percent from May to June on an adjusted basis but were down 12.6 percent from June 2008. Year-to-date, sales at these stores were reported to be down 14 percent.

ABOUT THE AUTHOR

The original report appears in full in the monthly newsletter – Furniture Insights, which is supplied by the accountancy and consulting firm. 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.