Executive Summary

As we expected, the results of our latest survey of residential furniture manufacturers and distributors for April 2020 were not very pretty. In fact, they were downright ugly. New orders in April 2020 were down 61% from April 2019 and down 52% from March. As the COVID-19 virus pandemic hit, March orders were down 29% from March 2019. As expected, every one of our participants reported a significant decline in orders.

The April results brought the year to date orders to a decline of 21% after an 8% decline reported through March.

Shipments were down 50% from April 2019 and March 2020. In March, shipments were down 11% from March 2019. The April results pulled year to date shipments down to a 15% decline. Since shipments were not off as much as orders, it meant that there was some shipping from backlogs, so backlogs in April dropped 8% from March. Backlogs were down 12% from April 2019.

Receivables were down 21% from April 2019, not in line with the 50% decline in shipments for the month, but not too bad considering year to date shipments were off 15%. But receivables will be a problem most likely over the next couple of months as so many retail stores have been closed.

Inventories were down 4% as everything happened so quickly it was not possible to adjust. But we think from what we are hearing, business has come back quickly enough that having inventory has been a plus.

The shut down of factories and warehouses reduced payrolls by 63%. The number of these employees was down 13% from March but this factor will be hard to follow over the next few months due to the effects of the Payroll Protection Program from the federal government providing funds to allow companies to bring back employees even thought business might not have justified.

National

Consumer Confidence

Consumer Confidence Index rose in June after a steady May and big drops in March and April. The overall Index was at 98.1, up from 85.9. The Present Situation Index improved to 86.2 from 68.4. The Expectations Index improved to 106.0 from 97.6 last month. The report indicated that while consumers are less pessimistic about the short-term outlook, they do not foresee a significant pickup in economic activity.

Leading Indicators

The Conference Board Leading Economic Index increased 2.8% in May after a 6.1% decline in April and a 7.5% decline in March. Most of the gain was related to the decline in unemployment claims. This report indicated that the breadth and depth of the decline in the LEI in April and May suggests the economy at large will remain in recession territory in the near term.

Housing

Existing-home sales fell again in May, the third consecutive decline, falling 9.7% from April and down 26.6% from a year ago. Single-family home sales were off 9.4% from April and down 24.8% from a year ago.

Regionally, sales compared to May 2019, were down 29.9% in the Northeast, 20.2% in the Midwest, 25.1% in the South and 35.1% in the West. Median home prices grew in three of the four regions, but falling slightly in the West.

New house sales were up 16.6% in May compared to April and actually up 16.6% from May 2019. Sales were up 45.5% in the Northeast, 28% in the Midwest, 6.3% in the South and 31.0% in the West compared to May 2019.

Housing starts in May were up 4.3% from April but down 23.2% from May 2019. Single-family starts in May compared to May 2019 were down 20% or more in all regions except the West where they were off 3.8%.

Other

Advance reports for retail sales in May noted an increase of 17.7% over April but were 6.1% below May 2019. Nonstore retailers were up 30.8% from May 2019 while building material and garden equipment and supplies dealers were up 16.4%. Furniture and home furnishings stores were down 22% from May 2019 and down 18.1% year to date. For the March to May 2020 period, sales were down in the furniture and home furnishings stores 33.2% from the sale period a year ago.

Consumer prices fell 0.1% in May after an 0.8% decline in April. Over the last 12 months, prices increased 0.1% in the all items index. The gasoline index declined 3.5% in May while the food index increased 0.7%.

Nonfarm employment rose by 2.5 million in May after the 20.5 million decrease in April. The unemployment rate dropped to 13.3% from 14.7% last month.

The third estimate of the Gross Domestic Product for the first quarter of 2020 stayed at a 5.0% decline.

Thoughts

The April results of our survey were not that far off from the straw poll we took last month, as orders were down 61% from April last year. We expect a significant decline again in the May results but not as severe as in April.

On the better news front, from our conversations, most have felt that business has come back somewhat better than expected. While not necessarily back to normal, at least they seem to be back to levels that can be dealt with. The overall concern has been “will it continue” or is this just catching up the pent-up demand.

On the not so good front, the virus issues are not going away. Unfortunately, the number of cases has started to rise again as states opened up. While some of this increase is attributable to more testing, the number of hospitalizations has also increased. We are certainly not experts in this area, but we think that hospitalization increase cannot be a good thing.

We are concerned for many of the small retailers and those that serve those dealers. As we are seeing in other industries, such as restaurants, some owners who are older, are just saying “I quit,” choosing not to spend retirement money to keep the boat floating.

Most folks have been through some bad times before and have some idea of what to do. At least the banks for the most part are not as difficult as they were in 2008 and 2009.

We hope many of you have been helped by the Payroll Protection Program money. We keep working with clients as the rules keep changing for forgiveness but hopefully most can work for a high percentage of forgiveness.