Executive Summary

According to our recent survey of residential furniture manufacturers and distributors, new orders in May 2018 were 5% higher than orders in May 2017. The 5% increase followed a 15% increase reported last month for April results. We noted last month that some of that increase may have been related to the earlier High Point Market dates as well as maybe more than usual order writing at Market, but the 5% increase in May seems to indicate that both months were pretty good in total.

May 2017 orders were 8% over May 2016 so the 5% increase also compared to good results last year. With that said, increased orders were reported by only one half of the participants in May 2018. Year to date, new orders remained 6%, ahead of the same period last year. Some 63% of the participants reported higher orders year to date.

Shipments in May were 2% higher than May 2017 when they were 7% higher than May 2016. Shipments were up for 58% of the participants. Year to date, shipments were up 3% over 2017. Last year, 2017 shipments were 4% higher than the same period for 2016. Shipments for the period were higher for 63% of the participants, about the same as last month.

Backlogs were up 3% from April as the dollar amount of new orders were higher than shipments. Backlogs were 5% higher than May 2017 levels, down slightly from 6% reported last month. Backlogs were actually down slightly from the previous year in both January and February, so it was good to see them a bit healthier.

Receivable levels appear to be in good shape considering shipment levels. Inventories were 6% higher than May 2017 but this increase has been falling and those levels seem to be getting more in line with current business conditions.

Both factory and warehouse employees and payroll levels seem very much in line with current business conditions.

National

Consumer Confidence

As has been the case several times recently, the two reports on changes in consumer confidence were in opposite directions.  But this month, both reports indicated little change either way with the Confidence Board’s index improving slightly but the Michigan report showing a slight decline.

The Conference Board report indicated that while economic growth is still strong, expectations do not see growth accelerating.  The expectations for short term income prospects were also mixed.

The Michigan report indicated that in spite of expectations of higher inflation and higher interest rates ahead, consumer have kept their confidence of high levels due to favorable job and income prospects.  Potential tariffs were also mentioned by a growing number of households.

Housing

Existing-home sales fell for the third straight month in June as declines in the South and West offset gains in the Northeast and Midwest. The ongoing shortage of homes available for sale continued to drive up prices. Total sales fell 0.6% as did single-family home sales. Total sales were 2.2% below a year ago while single-family sales were down 2.3% from a year ago.

New single-family home sales in June 2018 were down 5.3% from May but were up 2.4% from June 2017. Sales were up in the Northeast, Midwest and South, but fell 15.0% in the West.

Privately-owned housing starts in June were 12.3% below May starts and were 4.2% below June 2017. Single-family starts in June were 0.2% below June 2017. Sales were up slightly in all regions except the Midwest.

Privately-owned housing completions were even with May though single-family completions in June were 2.3% lower than May. Single-family completions were up 4.8% in the South and 22.8% in the West, but fell 16.4% in the Northeast and 10.2% in the Midwest.

Other

The Conference Board’s Leading Economic Index (LEI) for the U.S. increased 0.5% in June following no change in May and a 0.4% increase in April. The report noted that the growth in most indicators does not suggest any considerable growth slowdown in the short-term.

The advance estimates for U.S. Retail and Food Services for June 2018 showed an increase of 0.5% from May and a 6.6% increase above June 2017. Sales for the April 2018 through June 2018 period were up 5.9% over the same period a year ago.

Sales at furniture and home furnishings stores in June 2018 were up 4.8% over June 2017. Year to date, sales at these stores were up 5.3% over the same period a year ago.

The Consumer Price Index increased 0.1% in June after a 0.2% increase in May. The all items index rose 2.9% for the twelve months ending in June. This was the largest 12 month increase since the period ending February 2012. Increases in shelter, gasoline and food all rose to lead the overall increase.

Total nonfarm payroll employment increased by 213,000 in June but the unemployment rate increased to 4.0%. The number of unemployed increased by 499,000 to 6.6 million.

Thoughts

While the first quarter results were a bit weak with orders up only 3% and shipments up 1%, the second quarter so far has been much better with orders now up 6% and shipments up 3% over the first five months of last year. Certainly not all participants have enjoyed the increase but many are having pretty decent results.

The government reports for sales of furniture and home furnishings stores continue to show fairly nice increases, but those encompass several channels so it all depends on who your customers are.

Consumer confidence continues to be very favorable in spite of concerns over tariffs, inflation and higher interest rates. But confidence has been buoyed by continued economic growth overall.  

Housing remains a drag on businesses as inventories remain low. But the employment data continues to be strong with many people now getting better jobs and most, who want a job, are able to find employment, even if not what they might like.

According to the advance estimate, the Gross National Product increased 4.1% in the second quarter, which is the strongest quarter in some time. Most do not believe that rate of growth will continue, but anticipate it will move back to the 3% range.

Continue to be safe for the rest of the summer and hopefully find some time to relax and have a bit of fun.