Executive Summary

We had heard at the High Point Market that business seemed to have picked up a bit. We also heard that order writing at Market was one of the best in a while. That said, we did not expect that our monthly survey of residential furniture manufacturers and distributors would show a 15% increase in new orders in April 2018 versus April 2017. Market being a week earlier in April 2018 versus 2017 had some impact in that orders not written at Market had more time to be placed, but, for either reason, the results for April were very good.

Some 79% of the participants reported increased orders in April over April 2017. That was up from only 42% reporting increases in March.

Year to date, with the April increase, new orders were up 6% over last year. New orders year to date were up for 68% of the participants in April, up from 56% reporting increases last month.

Shipments were up 10% in April 2018 versus April 2017. April 2017 were up 2% over April 2016. March 2018 shipments were only up 2% over March 2017. Shipments were up for 68% of the participants, up from 42% last month.

Year to date, shipments were up 3% through April, up from 1% reported last month. Shipments were up year to date for 61% of the participants, up from 50% last month.

Backlogs were up 6% from March and 6% from April 2017 as new orders exceeded shipments in dollars. Backlogs had been down slightly in three of the last four months.

Inventories were up 7% from April 2017, down from 9% reported last month. After being a bit high the last few months, inventory levels appear to be falling a bit more in line.

Both factory and warehouse employees and payrolls appear to be very much in line with current business conditions.

National

Consumer Confidence

As has been the case several times recently, the two different reports on consumer confidence have shown slightly different results although both reports indicate the confidence remains at high levels. The Conference Board Consumer Confidence Index decreased in June following an increase in May. The Index was 126.4, down from 128.8. The Present Situation Index was relatively flat, 161.1 versus 161.2 last month, while the Expectations Index declined to 103.2 from 107.2 last month.

The report indicated that “Consumers’ assessment of present-day conditions was relatively unchanged, suggesting that the level of economic growth remains strong. While expectations remain high by historical standards, the modest curtailment in optimism suggests that consumers do not foresee the economy gaining much momentum in the months ahead.”

The University of Michigan Surveys of Consumers indicated a slight increase in sentiment due to more favorable assessments of their current financial situation and more favorable view of current buying conditions for household durables. The Expectations Index did decline to the lowest level since the beginning of the year. The decline appeared to be based on concerns for future income growth as compared to the risk of higher inflation.

Housing

Existing-home sales fell for the second straight month in May with only the Northeast seeing a slight uptick. Total existing home sales fell 0.4% in May and were 3.0% below a year ago. Single-family home sales fell 0.6% in May and were 3.0% below a year ago. The median existing single-family home price was $267,500 in May, up 5.2% from May 2017. The decline in sales was blamed again on “incredibly low supply” coupled with higher prices and higher mortgage rates.

On the other hand, new home sales in June were up 6.7% over May 2018 and up 14.1% over June 2017. Sales were up 40.3% in the Midwest and also up in the South and West, while declining 16.3% in the Northeast. Housing starts were also up nicely in June, up 5.0% over May 2018 and up 20.3% over June 2017. Single-family starts were up double digits plus in all four regions of the country.

Other

The Conference Board’s Leading Economic Index (LEI) for the U.S. was up again in May to 109.5. This index has increased every month this year. The improvements in a majority of its components offset declines in leading indicators of labor markets and residential construction.

The advance estimates for U.S. Retail and Food Services for May 2018 indicated a 0.8% increase from April and were up 5.9% from May 2017. Total sales from March 2018 to May 2018 were up 5.2% from the same period a year ago.

Sales at furniture and home furnishings stores in May were up 3.5% from May 2017. Sales at these stores were up 5.2% for the first five months of the year compared to the same period a year ago.

The Consumer Price Index increased 0.2% in May after rising 0.2% in April. The all items index rose 2.8% for the 12 months ending May, up from 2.5% for the 12 months ending April. The gasoline index increased 1.7% leading to a 0.9% increase in the energy index. The medical care index increased 0.2%.

The nonfarm payroll employment increased by 223,000 in May after a 164,000 increase in April. The unemployment rate dropped to 3.8% and the number of unemployed persons declined by 772,000.

Thoughts

While the first quarter of 2018 was nothing to get too excited about, our survey results for April were very good overall and good for most of the participants. These results brought year to date orders up nicely and resulting shipments improved.

Overall business in May and June, based on our conversations, has not continued as strong. We heard Memorial Day sales were fairly strong (normally a good weekend due to the holiday sales), but since then, in most cases, business has been slower.

Consumer confidence remains very high which is good. The political situation with potential tariffs and related stock market jitters keep consumers a bit concerned over future developments. Also, the ugly word inflation causes concerns among consumers as well.

Housing is not helping. While housing starts are improving and new home sales have continued to pick up, existing home sales are struggling with low inventories, higher prices and higher interest rates. We need people to be moving in these summer months to generate furniture sales.

Of course, for the furniture industry, we have to remember it is summertime ‒ a time for vacations and spending money and time for other things. So we do need to keep in mind that this is generally just a slower time for the furniture business. We hope you have a great and safe summer with some fun in the sun.