US Furniture Insights  

Executive Summary of March 2016 Issue of Furniture Insights Report

by Kenneth D. Smith, CPA, Smith Leonard PLLC

The results of our survey of residential furniture manufacturers and distributors seemed to be in line with many of our recent conversations, that being that business seems to have softened in the last few months. New orders were up 2 percent in January compared to January 2015. Only 32 percent of our participants reported increased orders in January, down from about 50 percent last month.

Shipments were down 1 percent from January a year ago with only 24 percent of the participants reporting. But keep in mind that January 2015 orders were up 7 percent and shipments were up 10 percent over January 2014 so the 2016 comparisons are to some pretty good numbers. It seems that sometimes we start feeling that business is slow – in comparison – but we forget what we are comparing it to.

Backlogs were basically flat from December and January a year ago, but once again, backlogs in January 2015 were 16 percent higher than January 2014.

Receivables were down 4 percent from a year ago which was good compared to the 1 percent decline in shipments. Inventories were up 6 percent from January 2015 and up 2 percent from December. These levels appear a bit high and will need to be watched as the year moves on.

Factory and warehouse payrolls and number of employees remain pretty much in line with current business conditions. National At the national level, consumer confidence improved slightly in March after a small decline in February. The report noted that consumers’ assessment of current conditions had a moderate decline, while expectations in the short-term were more favorable.

The fourth report from the Bureau of Economic Analysis noted that GDP for the fourth quarter increased 1.4 percent, up from the previous estimate of 1.0 percent but down from the third quarter estimate of 2 percent growth. Both quarters were lower than the 3 plus percent target. The Conference Board’s Leading Economic Index increased 0.1 percent after 2 months of declines.

The housing results were mixed with existing home sales down in February a seasonally adjusted 7.1 percent from January but remained up 2.2 percent over February a year ago. Sales were off in all four regions of the country but all were still higher than a year ago except for the Midwest where they were flat.

New residential sales in February were up 2 percent over January but were off 6.1 percent from a year ago. Sales were down in the Northeast and South, but up in the Midwest and West. Single-family housing starts were up 7.2 percent over January and up 32 percent over February 2015 with all four regions of the country up nicely.

Retail sales in February were down 0.1 percent from January but 3.1 percent above February 2015. Sales at furniture and home furnishings stores were up 3.8 percent from January and 3.8 percent from February 2015. Consumer prices overall were in line but those were affected by lower energy costs and higher food costs primarily away from home.

Overall, the current thoughts of most is that business slowed during the fourth quarter and has continued to slow especially in February and March. Most of the normal indicators for furniture remain good – low interest rates, decent housing results (maybe not back to all-time highs, but solid results) low inflation and gas prices. Business has been affected by slower business in the oil producing states and some weather related conditions.

Stock market volatility and negative national news, especially the negative political talk, seem to keep people unsure. If you listen to the candidates, everything is wrong with the country. Yet, when most people look around, things are not that bad for most. One client, when we were discussing the cause of the slowdown, suggested it could be caused by some underlying thing that we don’t even know what it is. I suggested that was spooky.

I happened across an article written in 1982 by Glenn Goodwin, a former partner of mine at Seidman & Seidman. In the article, it noted that “housing starts have been severely depressed for the last few months. It said that in 1981 housing starts for the year were 1,086,000 units, the lowest rate of construction since 1959.” Housing starts in 2015 were 1,111,800. The most recent peak was 2,068,000 in 2005 with the valley at 554,000 in 2009. So needless to say, housing starts have not been our friend since the beginning of the recession.

We know that things are slow at retail in the oil producing states, but hopefully business will improve as spring time brings consumers out. Let’s hope it brings good feelings as we come to Market. We hope to see many of you here in High Point. Let us know if we can help.