After two months of declining orders, December new orders ticked up 4% according to our latest survey of residential furniture manufacturers and distributors. Orders were down 8% in October and 5% in November, so it was nice to see the negative trend reversed. Unfortunately, only 58% of the participants reported increases.
So, for the year, orders were down 2%, and that result was much more consistent among the participants as some 71% of the participants reported lower orders for all of 2019.
Shipments were up 2% in December with 52% of the participants reporting increased shipments for the month. For the year, shipments were just slightly ahead of 2018 but were down for 62% of the participants.
Backlogs fell 4% from November as shipments in dollars exceeded new orders. Backlogs were 2% higher than December 2018.
Receivable levels remained in good shape, down 4% from December 2018 even with shipments up 2%. Inventories remain a bit high considering current order and shipment levels, but the increased levels have been declining for several months.
The results for factory and warehouse payrolls and number of employees continue pretty much in line with expectations. Payrolls for the year were up slightly even with shipments flat, but we think most of that relates to those, who are still manufacturing, giving some raises in order to get and/or keep employees.
The Conference Board Consumer Confidence Index improved slightly in February, following an increase in January. The increase resulted from a mixed report as the Present Situation Index decreased while the Expectations Index increased. The report noted that while the Present Situation Index declined, consumers continue to view current conditions quite favorably. There was a slight decline in the feeling that business conditions were good.
For the short-term expectations, the report noted that “Consumers’ short-term expectations improved, and when coupled with solid employment growth, should be enough to continue to support spending and economic growth in the near term.” The outlook for labor markets was mixed as well as for short-term income prospects.
Existing-home sales declined in January, continuing a fluctuating pattern of monthly increases and decreases. Single-family home sales were down 1.2% from December but up 9.7% from a year ago. Regionally, sales increased in the Midwest and the South from December. Sales were up significantly in all four regions compared to January a year ago, up from 5.2% to 7.4%.
New house sales in January were up 18.6% from January a year ago and up 7.9% over December 2019. In December, sales were up in all regions except the South where they were down 2.4%.
Housing starts in January were 3.6% below December starts but were 21.4% above the January 2019 rate. Single-family starts were down 5.9% from December but were 4.6% ahead of January 2019. Single-family starts were up in the Midwest and West but were down in the Northeast and South.
Advance estimates for U.S. retail and food services sales for December were up 0.3% in January 2020 from December 2019 sales and up 4.4% over January 2019. For the three months ended January 2020, sales were also up 4.4% from the same period a year ago. Sales for furniture and home furnishings stores in January were up 0.6% from December and 1.8% over January 2019.
Real gross domestic product (GDP) increased at an annual rate of 2.1% in the fourth quarter of 2019, according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP also increased 2.1%.
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, exports, residential fixed investment, and state and local government spending that were partly offset by negative contributions from private inventory investment and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
The Conference Board Leading Economic Index increased 0.8% in January following a 0.3% decline in December. The increase in January was driven by a drop in initial unemployment insurance claims, increasing housing permits, consumers outlook on the economy and financial indicators. The report continued to suggest that the economy should continue to grow at about a 2% rate into early 2020. It did mention that the manufacturing sector may be impacted by the Coronavirus.
The Consumer Price Index rose 0.1% in January after a 0.2% increase in December. Over the last 12 months, the index increased 2.5%. The index for shelter accounted for most of the increase. The increase was enough to offset a 1.6% decline in the gasoline index. The index to all items less food and energy increased 0.2% in January. Indexes for shelter, medical care, apparel, recreation, education and airline fares increased in January while indexes for used cars and trucks, prescription drugs and household furnishings declined.
Total nonfarm employment rose by 225,000 in January and the unemployment rate remained at 3.6%. Notable job gains occurred in construction, healthcare and in transportation and warehousing.
The ups and downs of business continued in the December results of our survey. The 2% decline in orders for the year and a very slight increase in shipments, resulted in a rather weak year overall. The results were mixed by companies as well as on a month to month basis as can be seen in the chart of monthly results.
We read the Berkshire Hathaway annual report which stated that their Home Furnishings group revenues were down 1.3%. With that strong group of companies represented; it seemed to indicate that the weakness in the industry was felt at retail as well.
The Coronavirus situation is not helping us start 2020 in a very positive way. All the concerns over travel, sourcing and general bad news will not be good if this epidemic isn’t slowed soon. Consumer confidence has remained high, but that study was done before the news finally scared the stock market folks into realizing this is more than a virus, but a serious problem for business in getting materials, parts and labor. That includes even getting products shipped.
This morning someone asked what will happen to consumers if they find that they will not be able to buy a new iPhone every year. I suggested that maybe they could use some of that savings to buy some furniture.
Seriously, we hope that this whole issue can be controlled soon. The disruption in business will be very serious the longer it lingers on. With the negative news from this year’s election coming up, that will be enough to create problems in the industry, without the virus issues.
Despite all of this, most of the economic news indicates that the economy should remain in a decent growth mode for most of 2020. But again, the virus scare has not yet been reflected in much of the economic data. Let’s hope we can get through all of this soon, so we can have a chance to enjoy the “good” economy, maybe a bit better than the industry did in 2019.