Executive Summary
We had continued to hear from folks that business in November and December had been a bit slower and the 3% increase in orders in November seemed to prove those comments. Yet, according to our latest survey of residential furniture manufacturers and distributors, new orders in December were up 7% over December 2017. That said though, only 45% of the participants reported increased orders in December compared to December a year ago. So it was a month of very good results for some but not so great for all.
December’s increase in orders was the 12th straight month of positive comparison to the previous year. This led to an increase of 6% in new orders for the year, up from a 4% increase reported last year. Shipments were basically even with December 2017. Some 63% of the participants reported increased orders for the year. For all of 2018, shipments were up 3% over the 2017 year. For the year, 66% of the participants reported increased shipments.
With new orders exceeding shipments for the year, backlogs grew 13% higher than December 2017 levels.
Receivable levels increased 7% in December, somewhat higher than the 3% increase in shipments for the year as well as the flat December to December results. We imagine this is a timing issue due to the holidays but we will monitor.
Inventories were up 6% at the end of December, pretty much in line with order rates. Inventories fell 1% from November to December as they were getting a little high considering current business levels.
The factory and warehouse payrolls and the number of factory and warehouse employees remained in line with current business conditions.
National
Note: Some of the normal national reports were not available due to the government shutdown.
Consumer Confidence
After the Conference Board Consumer Confidence Index® falling for December and January, the Index rebounded in February with the Present Situation Index increasing as well as the Expectations Index. Lynn Franco, Senior Director of Economic Indicators at the Conference Board noted that “both business and labor market conditions were favorable. Expectations, which had been negatively impacted in recent months by financial market volatility and the government shutdown, recovered in February. However, according to the Conference Board’s economic forecasts, the pace of expansion is expected to moderate in 2019.” The Index now stands at 131.4 (1985=100), up from 121.7 in January. The Present Situation Index – based consumers’ assessment of current business and labor market conditions – improved, from 170.2 to 173.5. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – increased from 89.4 last month to 103.4 this month.
The University of Michigan Surveys of Consumers early report was also positive. Chief Economist, Richard Curtin said, “The early February gains reflect the end of the partial government shutdown as well as a more fundamental shift in consumer expectations due to the Fed’s pause in raising interest rates.” This report suggested a 2019 GDP gain of 2.2%.
Housing
Existing home sales had a minor drop in January after a decline in December as well. Only the Northeast region reported an increase in sales activity. Single-family sales were down slightly from November but were down 8.4% from January 2018. Single-family home prices were up 3.1% from January 2018. The report indicated that sales are “likely to have reached a cyclical low.”
No results for new home sales or housing starts were available at press time.
Other
The Conference Board’s Leading Economic Index (LEI) declined 0.1% in January following no change in December and a 0.1% increase in November. In January, the strength in financial components were offset by weaknesses in the labor market components.
Advances estimates for retail and food services sales for December 2018 as adjusted were down 1.2% from November but 2.3% ahead of December 2017. Total sales for the year were up 5.0% from 2017. Sales at furniture and home furnishings stores were down 0.2% from December 2017 but were up 3.5% for the year. Note that motor vehicle dealer sales were up 3.1% for the year.
The Consumer Price Index was unchanged in January. Over the last 12 months, the all items index increased 1.6%. The energy index declined in January, offsetting increases in indexes for all items less food and energy. The 12 months increase was the smallest increase since the period ended June 2017.
Non-farm payroll employment increased by 304,000 in January but the unemployment rate rose to 4.0%. Employment was up in several industries including leisure and hospitality, construction, healthcare, and transportation and warehousing.
Thoughts
The increase in new orders was a bit surprising for December based on our conversations. With only 45% reporting increases, the increase was driven by some large increases. We wonder if maybe the tariff issues had something to do with the pickup in orders in December. For the year, the results were pretty good posting a 6% gain in orders following a 4% increase last year.
Both consumer confidence reports were positive after recent declines. Both these reports and the Economic Indicators reports noted that the economy growth is slowing and is expected to taper off in 2019. The initial GDP report for the fourth quarter of 2018 was showing growth at 2.6% down from 3.4% in the 3rd quarter. But the 2 plus percent they project for 2019 is not all bad. Growing at the very fast rates over long periods makes it difficult to find workers with the right skillsets.
The delay in tariffs (till when) is helpful but makes it hard to plan what to do. We would like to think that sometime soon there is a timetable. Lots of production has been moved around with a lot of trouble and some more adjusting may be needed. It would be nice to know if and when more adjustments may be needed.
