August 2018 Furniture Insights

Executive Summary

New orders in June 2018 were up 5% over June 2017, according to our recent survey of residential furniture manufacturers and distributors. The 5% increase followed a 5% increase reported last month and 15% reported in April. Both the months of May and June had just around one-half the participants reporting increased orders.

Year to date, new orders were up 6% with some 63% of the participants reporting increased orders. These results seem to mirror conversations with people, some of whom feel pretty good about business conditions and others not so happy.

Shipments were up 2% over June 2017 and remained 3% up year to date. Shipments were up 7% last June when compared to June 2016 so the 2%, while not all that great, was compared to a strong result last year. Shipments year to date were up for 63% of the participants, compared to 65% last year.

Backlogs were 7% higher than last June, up from a 5% increase reported in May, but they did fall slightly from May to June.

Receivable levels were up 5% over last year which appeared a bit high considering shipment levels. Since receivables have seemed in line for the last few months, we think this month’s results may just be timing.

Inventory levels fell 1% from May and were up only 4% from last year. It appears that inventories are much more in line after appearing a bit high during the first few months of the year.

Both the number of factory and warehouse employees and their payrolls seem very much in line with current business conditions.


Consumer Confidence

Once again the two surveys showed opposite results for August. The Conference Board’s Index increased in August following a slight increase in July. The Index improved to 133.4 from 127.9 in July. This was the highest level since October 2000 when it was 135.8. The Expectations Index improved after declining in July and June suggesting solid economic growth for the remainder of 2018, according to the report. The outlook for improved business conditions and income were both more positive. The outlook for jobs was a bit mixed but still solid.

The University of Michigan Surveys of Consumers showed that consumer sentiment slipped to its lowest level since last September. The decline seemed to be concentrated among households in the bottom third of income distribution. The “dominating weakness reflected much less favorable assessments of buying conditions, mainly due to less favorable perceptions of market prices.” Conditions for household durables was the lowest in several years.


Existing-home sales fell again for the fourth straight month in July to the slowest pace in over two years. Total existing-home sales were 1.5% below July a year ago and have fallen on an annual basis for five straight months. Single-family home sales were down 1.2% from last year. The report continued the theme that low inventories continue to drive pricing up. That along with rising interest rates is making would-be buyers postpone their searches until prices ease off.

New single-family home sales were also off in July versus June 1.7%, but were up 12.8% compared to July 2017. Sales were up from last year nicely in the Midwest, South and West, but were off significantly in the Northeast.  Housing starts were up in July over June but were 1.7% lower than July 2017. Single-family starts were up 18.1% in the Midwest and 3.1% in the West, but were off 2.9% in the Northeast and off slightly in the South.


The second quarter (second estimate) results of Gross Domestic Product indicated that the economy grew at an annual rate of 4.2%, up from 2.2% reported for the first quarter. The increase was attributed to positive contributions from Personal Consumption Expenditures, nonresidential fixed investment, exports, federal government spending and state and local spending, that were partially offset by negative contributions from private inventory investment and residential fixed investment.

The Conference Board’s Leading Economic Index (LEI) for the U.S. increased 0.6% in July following increases in June and May. The report indicated that the strengths among the components of the leading index were very widespread. The Coincident Index also increased for the third straight month.

The advance estimates for U.S. retail and food services sales for July 2018 reported an increase of 6.4% above July 2017. Sales for the May 2018 through July 2018 were up 6.3% over last year. Sales at furniture and home furnishings stores were up 3.5% in July over July 2017. Year to date, sales at these stores were up 5.0% over last year.

The Consumer Price Index increased 0.2% in July. Over the last twelve months, the all items index rose 2.9%. The index for shelter rose 0.3% in July accounting for 60% of the all items index. For the twelve months, the energy index rose 12.1%. Total nonfarm payroll employment rose by 157,000 in July. The unemployment rate dropped back down to 3.9%. The number of unemployed declined by 284,000 to 6.3 million.


The June results finished off the second quarter with pretty good results as orders year to date were up 6% and shipments up 3%. Backlogs also appeared to be fairly strong. But not everyone is enjoying the same success. We would feel better if all or at least a larger percentage were seeing improvements.

As we have said before, we realize that many of our participants are like the industry in general. There are so many product categories and as an industry we are very fragmented. Also, customer bases are very different among all players so we know to be at the top in growth, you have to have hot selling products, being sold to the customers who are also hot and know how to sell YOUR products and they need to be in areas of the country that also like and can afford your products. Sounds pretty easy to me, but apparently it is not, or everyone’s growth would be the same.

It’s interesting how the two consumer confidence surveys continue to be both strong but diverse in their current directions. The Michigan survey gives us a bit of why, with confidence so high, the furniture industry is not benefitting as much as we think it should. 

We also think that the housing situation continues to be a drag on our business. It appears that we have the perfect storm of low inventories, driving prices up, along with higher mortgage rates. Add to that, new homes are more expensive due to higher material costs. So it appears that buyers have decided to wait. We will have to see how that works out.

We hope you have a safe Labor Day weekend and the Labor Day sales bring good business for all.

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