Executive Summary

We hate to say “more of the same” but our latest survey continued that theme. For the third time in four months, new orders were down compared to the same month a year ago. Orders in November 2019 were down 5% from November 2018. Last month, orders were down 6%. November 2018 orders were up 3% over November 2017. The “choppy” descriptions we have used before continued as, in spite of being down 5% overall, only a little more than one-half the participants reported lower orders. The decline in November brought the year to date totals down to a 2% decline compared to the same period a year ago. Orders year to date were down for 68% of the participants.

Shipments in November were down 3% versus November 2018 but again the results were uneven. Just under one-half of the participants reported lower shipments. Last year, November shipments were up 8% over November 2017. As a result of the November decline, shipments year to date were basically flat compared to a year ago. Interestingly, even though shipments in total were even with the same period a year ago, shipments were down for 62% of the participants.

Backlogs were up 1% over November 2018, down from a 2% increase reported last month and a 6% increase reported in September. Obviously, with the slower order rates, backlogs have been brought down significantly.

Receivable levels overall appear to be in good shape and as we have been doing planning with many of our clients back in November and December, we have not heard much about significant accounts that may need write offs or reserves. So that is good news.

Inventory levels are still too high at 7% above November 2018 but those higher levels continue to decline. October levels were 11% higher than October 2018. With so much inventory being imported, it is just hard to bring the levels down quickly, considering the long lead times, for both finished goods and certain raw materials.

Factory and warehouse payrolls and employment levels continue to be reasonably in line considering current conditions.

National

Consumer Confidence

The Conference Board Consumer Confidence Index increased in January to 131.6 from 128.2. Both the Present Situation Index and the Expectations Index increased. The December Index had increased moderately as well. The primary reasons for the increase of confidence in January were a more positive assessment of the current job market and increased optimism about future job prospects. The report noted that the optimism in the labor market should continue to drive growth and prevent the economy from slowing in early 2020.

The University of Michigan Survey was unchanged in January as there was stability in current assessments as well as future economic prospects. The report noted the impeachment was barely mentioned, just by 1% of consumers. Those that did mention were less optimistic than other consumers. They did note positive changes following the Clinton impeachment trials (see deeper dive – National).

Housing

Existing-home sales in December increased 3.6% from November and were up 10.8% from a year ago. For the year 2019, sales were even with 2018 as sales in the South were up 2.2% and even in the Northeast but were down 1.8% in the West and 1.6% in the Midwest.

Single-family sales were up 10.6% from a year ago with the median existing-home prices increasing 8% from December 2018. It was noted that low inventories of existing homes remain a problem.

New house sales in December were down 0.4% from November but were up 23% from December 2018. Sales were up substantially in three regions with only the South down, at 1.2%.

Housing starts were up substantially – up 16.9% above November and 40.8% above December 2018. Single-family starts were up 11.2% over November. Single-family starts were up in all regions – 3.4% in the Northeast, 73.1% in the Midwest, 20.8% in the South and 36.6% in the West.

Other

Advance estimates for U.S. retail and food services sales for December were up 0.3% over November and 5.8% over December 2018. Total sales for the year were up 3.6%. Sales for furniture and home furnishings stores were up 3.2% over December 2018 and up only 0.7% for the year.

Gross Domestic Product (GDP) increased at 2.1% in the fourth quarter according to advance estimates from the Bureau of Economic Analysis. The increase reflected positive contributions from Personal Consumption Expenditures (PCE), federal and state and local government spending, residential fixed investments and exports, partially offset by negative contributions from private inventory investment and nonresidential fixed investment.

The Conference Board Leading Economic Index declined 0.3% in December after a 0.1% increase in November. The slight decline was based on negative contributions from rising unemployment insurance claims and a drop in housing permits. The report noted that financial conditions and consumers’ outlook for the economy remain positive, which should support growth of about 2% through early 2020.

The Consumer Price Index rose 0.2% in December after rising 0.3% in November. The indexes for gasoline, shelter, and medical care all rose in December, accounting for most of the increase. The all items index increased 2.3% for the 12 months ended December.

Total nonfarm employment rose by 145,000 in December. The unemployment rate was unchanged at 3.5%. Notable gains occurred in retail trade and health care.

Thoughts

We could almost just copy over our thoughts from last month. More soft business for many in the survey but quite a mix in results. We do not see consistency in any one sector. In looking at the retail report; the furniture results are lagging (though not as bad as clothing and accessories down 0.6% for the year, electronics and appliance stores, down 2.2%). Food services and drinking places were up 4.4% and nonstore retailers were up 13.1%.

We continue to hear that internet sales are taking away from brick and mortar stores, yet we know that many of the furniture manufacturers and distributors are selling over the internet, so it is not like there is no furniture business being done through those outlets.

We continue to believe that negative news in the media is hurting furniture sales yet according to the University of Michigan survey, the impeachment issue doesn’t seem to register.

We think the internet numbers affect the low sales at furniture stores. It’s just hard to tell how much is buried in them. The same issue appears to affect clothing stores and other categories.

So admittedly, it is hard to tell what the retail statistics story tells us. Yet we do see from our survey that business overall is just not that strong for most.

Feel free to let us know your thoughts. Obviously, we talk to our clients, are happy to listen to other ideas as well. We will say that it’s not all gloom and doom. Some are doing well, maybe not great but pretty decent. Others are off some but after several years of decent growth, not really all bad. But after these pretty good years, it just doesn’t “feel” good to drift down a bit.

We are concerned about the effects of the corona virus. This could create significant disruption in supply chains. We hope the spread of the virus slows down soon.