Executive Summary

The July results of our latest survey of residential furniture manufacturers and distributors continued to show more and more improvements. The survey reflected a 39% increase in new orders over July 2019 following a 30% increase reported in June. Some 88% of the participants reported increased orders over the same month last year. We pretty much expected another good month and based on conversations, we expect increases to continue to be reported for August and September.

With the large increase in orders for the month, the year to date results are now about even with orders for the same period a year ago, although those results were very mixed. Only 28% of the participants reported increased orders year to date. We would note that the July year to date numbers are affected by an issue where last month a few larger participants were unable to report due to virus issues but were back in the survey through July.

Shipments were basically flat with July 2019 with 56% of the participants reporting increased shipments. Year to date, shipments were now down 14% compared to 21% reporting lower shipments last month. Some 94% of the participants reported lower shipments year to date.

With new orders exceeding shipments, backlogs grew to an increase of 69% over July 2019. The increase in backlogs is worrisome as the needs at retail are now. We realize the manufacturers and distributors are doing all they can to catch up. But it will take some time as we think most have been surprised by the length of the “recovery.”

Receivable levels seem to make sense based on year to date shipments. Inventories are just what they are as they were too high before the virus based on the conditions at the time, but it is probably a good thing they were, as having inventory to either ship or produce has been a good thing the last few months.

The level of factory and warehouse personnel is in a state of flux and continues to be. Most everyone we talk to in most any industry, is complaining about the lack of employees. Through July, much of it in our industry was caused by the added federal unemployment compensation payments, making it more profitable to stay home and do nothing versus working, but that ended at the end of July so hopefully, things have gotten somewhat better. Although, that is not really what we are hearing from most.

National

Consumer Confidence

“Consumer Confidence increased sharply in September, after back-to-back monthly declines, but remains below pre-pandemic levels,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “A more favorable view of current business and labor market conditions, coupled with renewed optimism about the short-term outlook, helped spur this month’s rebound in confidence. Consumers also expressed greater optimism about their short-term financial prospects, which may help keep spending from slowing further in the months ahead.”

The University of Michigan Surveys of consumers also reported improvement in consumer sentiment, reaching the top of the range since April.

Housing

Existing home sales continued to rise, with single-family home sales up 1.7% in August from July and up 11.0% from August 2019. Single family prices were up 11.7% from August 2019. All four regions of the country reported nice increases over August a year ago. Housing inventory was down again and was down 18.6% from a year ago. This situation is causing concern as the demand is described as robust but supply is not, so this will likely harm ownership opportunities.

New single-family house sales in August were up 4.8% over July 2020 and up 43.2% above August 2019. Compared to August 2019, sales were up major double digits in all regions of the country.

Housing starts were down 5.1% from July but single-family starts were up 12.1% over August of last year. Single family starts were up in all regions except the Northeast where they were down 6.6%. New home sales are going to be affected by rising costs to build as lumber costs are up considerably and are even more affected by wildfires in the West.

Other

Retail sales were up 0.6% in August from July and were up 2.6% from August 2019. Sales for the June 2020 to August period were up 2.4% over the same period a year ago. Sales at furniture and home furnishings stores were up 3.8% from August 2019. Year to date, sales at these stores were down 11.3% (July’s year to date sales were down 16.4%).

The Conference Board Leading Economic Index increased 1.2% in August following a 2% increase in July and a 3.1% increase in June. This report indicated that the rebound in the summer may be slowing for the final part of 2020. The report said that in spite of the improvement in August, the LEI remains in “recession territory”.

The consumer price index increased 0.4% in August after a 0.6% increase in July. Over the last 12 months, the index has increased 1.3%. The increase was noted as broad based with the index for used autos and trucks leading the way. Household furnishings was also listed as a cause.

Non-farm employment increased 1.4 million in August after a 1.8 million increase last month. The unemployment rate decreased to 8.4%. The number of unemployed persons fell by 2.8 million to 13.6 million.

Thoughts

Six months ago, who would have believed that backlogs would be out the roof and lead times for manufactured goods would be similar to those of years ago. The last couple of months increases over 2019 levels has shown that there really was pent up demand out there. But most believe staying at home caused many people to take notice of their furniture and make decisions to go out and buy whether they had planned to or not before the pandemic.

The good news is that business has remained strong for most even through September and most are expecting October to continue. Reports from many retailers continue to note that business at retail remains very good.

Of course, any time business gets good, something happens to make material prices go up including imported goods as well. Price increases are here and likely will need to continue as most of the parts and pieces are going up.

Most all reports from premarket were very positive. We know attendance by all reports was considerably higher than ever before and orders were written along with commitments. It will be interesting to see what the fall market brings. Some said they may not come back, but if business holds up, we suspect many will need to come even if here at premarket.

The bad news is that the election will not be over until after market, so we have three weeks to listen to all the bad news and bad things about every candidate. Hopefully, we are getting used to that and pay less and less attention. The University of Michigan survey about the presidential race was interesting, in that they are calling it even and that survey has been mostly dead on in recent elections.

In the meantime, let’s all try to make the best of the current business that you can. We know in this business, it doesn’t always just keep going up so enjoy it while you can.