US Furniture Insights  

Executive Summary of January 2016 Issue of Furniture Insights Report

by Kenneth D. Smith, CPA, Smith Leonard PLLC

According to our latest survey of residential furniture manufacturers and distributors, new orders increased 4 percent in November 2015 compared to November 2014 with some 52 percent of the participants reporting increases. Year-to-date, new orders dropped to a 4 percent increase, compared to a 6 percent increase reported last year comparing 2014 to 2013. Some 53 percent of the participants reported increased year-todate new orders.

Shipments were up 5 percent over November 2014 and up 6 percent year-to-date. Shipments increased for 64 percent of the participants, down from 70 percent in October.

Backlogs were flat comparing both November to October and November to November 2014. The above comparisons, coupled with the October results of a 1 percent increase in orders seems to be in line with several conversations we have had with folks, most noting that overall business seems to have slowed down a bit, both at retail and wholesale. That is certainly not true for all, but when just over 50 percent of the participants are reporting any increase at all in orders, that is a good indication that business has slowed.

The other indicators showed a 1 percent decline in receivables in spite of a 5 percent increase in shipments for the month (though receivables increased 1 percent from October in spite of a 3 percent decline in shipments). We will wait to get December results to see if this was just timing.

Inventories remained 7 percent ahead of November 2014, a bit higher than current business but not too far out of line yet based on shipments.

On the national front, consumer confidence ticked up a bit to 98.1 in January from 96.3 in December. The Present Situation Index was unchanged while the Expectations Index increased slightly. According to the Conference Board, “Consumers do not foresee the volatility in financial markets as having a negative impact on the economy.”

While that is probably true for some of the lower wage jobs, we still believe that overall it can have some impact on middle class workers who may not have millions in the market, but have some invested and hear their bosses complaining, which gives them cause for concern.

The Gross Domestic Product increase for the third quarter was estimated at a 2 percent with 15 of the 22 industry groups contributing. The 2 percent increase compare to a 3.9 percent growth rate in the second quarter. Wholesale trade decreased 5.8 percent, the largest decrease since the second quarter of 2009. Existing home sales in December increased 14.7 percent over November, somewhat expected due to the slow rollout of the Know Before You Owe initiative that slowed sales in November. Single-family home sales were up 16.1 percent over November and were 7.1 percent ahead of December 2014. Single-family sales were up over last year 11.9 percent in the Northeast, 9.9 percent in the Midwest, 4.6 percent in the South and 8.9 percent in the West.

New house sales were also up, rising 9.9 percent over December 2014 driven by large increases in the Midwest and West, with the South flat and Northeast down 6.5 percent. Housing starts were down a bit from November but up 6.4 percent over December 2014.

Retail sales were off in total just slightly, driven primarily by gasoline station sales due to the drop in gas prices. Sales at furniture and home furnishings stores were up 6.0 percent compared to December 2014 and finished the year up 5.8 percent, ranking 5th of the 13 categories in growth over last year.

The Consumer Price Index seemed to indicate that overall inflation is not a big issue though that has been helped by lower gas and oil prices.

Employment rose by 292,000 in December and the unemployment rate remained at 5 percent (3 months in a row).

As we have said before, there are so many good signs for the industry—low interest rates, a stronger housing market, inflation at reasonable levels, yet business is not following. We continue to believe that the negative political jargon, as well in some cases, the volatile stock market is holding business back.

There is also concern that the slower economic growth, and decreasing demand for buying in oil-producing metro areas may slow some growth in housing. But since there is usually some lag in the purchase of furniture, hopefully we will not see much impact from that in the near term.

With the housing market strength, we believe over the next several months, this strength will help sustain business. We have had several decent growth years in a row, so a bit slower growth should not make for bad times. It just doesn’t feel as good.

Unfortunately, business is not good for all and we will have to hear more negativity from the politicians for several more months. So for now, we say hang in there. Most economists believe we are in a slower growth period but not heading to a recession. Hopefully, they are the right ones.