Executive Summary
According to our latest survey of residential furniture manufacturers and distributors, the string of lower orders finally ended in July 2019. The July orders were up 6% over July 2018, following five months of reporting declines in new orders. Once again, the good news was not for all participants as only 53% of the participants reported increased orders for July compared to last year. The increase in July reduced the year to date orders decrease to a 2% decline, down from 3% reported last month. Orders were down year to date for 67% of the participants.
Shipments in July 2019 were 1% higher than July 2018 also ending a string of five months of declining shipments compared to the previous year. Shipments were down 12% from June, but that result was somewhat normal due to the shut down for week of July 4th when most take a week off.
Backlogs were up 7% from June bringing the comparison to July 2018 to a 1% increase after being down 5% last month.
Receivable levels were reasonable though a bit out of line, but we think that will probably get back in line in August as the vacation period can have some impact. Inventories remain a bit too high at an 8% increase over last year. But that increase continues to fall over the last few months, so it appears to be moving in the right direction.
Factory and warehouse employee levels and payroll continue in line when considering the shortage of workers and premiums being paid to get people.
National
Consumer Confidence
The Conference Board Consumer Confidence Index decreased from 134.2 to 125.1 in September after a slight decline in August. Both the Present Situation Index and the Expectations Index fell in September. The report noted that consumers were less positive in their assessment of current conditions due to concerns over trade and tariff tensions. The report did note that the pattern of uncertainty and volatility has persisted most of the year and appears that confidence may be plateauing. Pretty much each of the factors tended to show some decline in confidence, including declines in thoughts on labor markets as well as the outlook for income prospects.
The University of Michigan Survey of Consumers had a small increase in confidence but its indexes had fallen much further last month versus the slight decline in the Conference Board’s index. This report also mentioned concerns over tariffs but also noted concerns over higher inflation and unemployment. The report noted “While a recession is not anticipated in the year ahead, neither is a resurgence in personal consumption.”
Housing
Existing-home sales increased again in August with three of the four regions posting gains (the West declined 3.4% in single-family homes). Overall sales were up 2.6% from a year ago. Single-family home sales were up 2.9% from a year ago. The median existing-home price was $278,200, up 4.7% from August 2018. The August price increase marked the 90th straight month of year over year increases.
New residential sales were up 18.0% over August 2018. Sales were flat in the Northeast and down slightly in the Midwest, but were up 24.9% in the South and 17.9% in the West.
Housing starts were up 6.6% over August last year with starts up in the Midwest, South and West. Starts were down in the Northeast 1.7%.
Other
Advance estimates for U.S. retail and food services in August were up 0.4% from July and up 4.1% over August 2018. Year to date, sales were up 3.3% for all retail and food services. Sales at furniture and home furnishings stores were essentially even with both July 2019 and August 2018. Year to date, sales at these stores were down 0.5%.
The Consumer Price Index for all Urban Consumers increased 0.1% in August after a 0.3% increase in July. Over the last twelve months, the all items index increased 1.7%. Indexes for shelter and medical care were major factors in the increase, outweighing the decrease in energy index. The energy index fell 1.9% as the gasoline index fell 3.5%.
Non-farm payroll employment increased by 130,000 in August with the unemployment rate remaining at 3.7%. Job increases were noted in health care and financial activities, while losses were noted in mining.
Thoughts
After several months (five to be exact) of lower orders compared to the same month a year ago, the July results for orders created a good change of scenery. We have continued to use the term choppy as a description for business conditions and we continue to hear terms like that when talking to people. But as we noted in the report, while orders were up nicely compared to last year, orders were up for only 53% of the participants in the month. And orders were down 2% year to date with 67% of the participants reporting lower orders. So “choppy” may still be a good word.
The two Consumer Confidence reports, while different for the month, have definitely begun to show some declines in confidence over the last two months. Tariff and trade talks, possible inflation and, of course, the political news for presidential candidates, as well as anti and pro Trump conversations, do not put most people in a great confidence mode.
We have talked before about how consumers are spending on “gadgets” mostly through monthly payment plans or service fees. So when confidence drops, it leaves even less for our products. Let’s hope that the Michigan report, that describes slower but positive growth that will avoid a recession, is on target.
We look forward to seeing everyone at the High Point Market. As usual, good friends and great looking product shown in the best possible way all tend to turn the mood of market to a good one. If you have any thoughts you would like to share with us, please do so at ksmith@smith-leonard.com. At Smith Leonard, we are doing some great work in Transaction Advisory Services with both buy- and sell-side due diligence. If you think you may sell in the future, now is the time to get your house in order. Or we can help to make sure what you are looking at buying is what you may actually be getting. Certainly, if we can help with other tax or accounting matters, please let us know that as well.
