Executive Summary
While we noted last month that orders were expected to slow somewhat, and they did by slowing from increases of 40% plus to a 17% increase in the November to November comparison, December’s order rate trended back up again. December 2020 orders were up 27% over December 2019. Some 84% of our participants reported increased orders for the month. The increase in December brought total orders for the year to an increase of 15% over 2019. Back in April, who would have believed that we would have seen these results for the year.
With that good news, there was a little not as good news. Shipments in December were only up 5% over December 2019. The good news was that some 74% of the participants reported increased shipments. It is just that the amount of the increased shipments was not up as much as needed. The increase in December resulted in a decrease in shipments for the year of 6%. Approximately 78% of the participants reported declines in shipments for the year.
As expected with orders increasing more than shipments, backlogs grew again. Backlogs at the end of December were 168% higher than December a year ago. As we discuss in more detail in the full report as to why, these levels of backlogs are too high. In the old days, a big backlog was great, but then somebody realized that the end customers wanted it NOW, so the industry brought them down. Now customers are not happy with the wait and some are looking at other places to get product faster. This will or is leading to some cancellations.
Receivable levels remain in good shape for the most part. We think PPP loans helped with cash flow for most retailers. Inventories were still down from last year levels but did grow in December. The real problem with inventories is the ability to grow them with the scarcity of materials as well as the issues with flowing imported goods.
The number of factory and warehouse employees continues to be an issue especially with the domestic manufacturers, as all we hear is shortage of employees and that seems to be true no matter what section of the country you are in.
National
Consumer Confidence
The Conference Board Consumer Confidence Index® improved again in February after an increase also in January. The index now stands at 91.3 up from 88.9 last month. The Present Situation Index improved from 85.5 to 92.0 but the Expectations Index declined slightly from 91.2 to 90.8.
“After three months of consecutive declines in the Present Situation Index, consumers’ assessment of current conditions improved in February,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “This course reversal suggests economic growth has not slowed further. While the Expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months. Notably, vacation intentions—particularly, plans to travel outside the U.S. and via air—saw an uptick this month, and are poised to improve further as vaccination efforts expand.”
Consumers saw an increase in current business conditions with a decrease in those thinking conditions are bad. Both the jobs indicators also improved.
As for Expectations, consumers were somewhat less optimistic about business conditions improving over the next six months. The same outlook was true regarding jobs with expectations for more jobs available declining but those expecting fewer jobs also declined. Expectations for incomes were also mixed with plans for increases declining, but thoughts of decreases also declined.
Housing
Existing home sales rose again in January, the second consecutive month of month over month growth. All four regions again reported double digit year-over-year growth. Month over month growth was up in the Midwest and the South while down slightly in the Northeast and West. Single family sales were up 23.0% over January 2020.
The median existing home price was up again in January and up 14.8% over January 2020 marking the 107th straight month of year over year price increases. Total housing inventory was down 1.9% from December and down 25.7% from a year ago.
New homes sales were up 19% over January 2020 but the results were mixed with sales up in the Midwest and South but down in the Northeast and West.
Housing starts were actually down 6% from December and even down 2.3% from January 2020. We suspect weather may have been some of the cause of these declines.
Other
U.S. retail and food service sales were up 5.3% from December and up 7.4% from January 2020. Retail trade sales were up 5.1% from December and 10.8% over January 2020. Sales and furniture and home furnishings stores were up 11.7% over January 2020.
The Consumer Price Index increased 0.3% in January and increased 1.4% over the last 12 months. The gasoline index accounted for almost all of the January price increase. For the last twelve months, the food index increased 3.8% and despite rising in the recent months, the energy index declined 3.6% over the last year.
Non-farm payroll employment rose by 49,000 in January after declining in December. The unemployment rate fell by 0.4% to 6.3%. The Conference Board’s Leading Economic Index increased 0.5% in December following increases of 0.4% and 0.9% in each of the prior two months. Atman Ozyildirim, Senior Director of Economic Research at The Conference Board, said “While the pace of increase in the U.S. LEI has slowed since mid-2020, January’s gains were broad-based and suggest economic growth should improve gradually over the first half of 2021.”
Thoughts
As we noted earlier, the increase in orders was a bit higher than we expected. Most of our contacts had indicated that incoming orders were still strong, but the December orders were somewhat a surprise. It could be that our conversations have been more recent so the lower order rates may hit January/February timing.
That said, the increased orders were across a variety of companies so that was good. There is still the problem of getting those orders produced or otherwise out the door to customers. Another issue is that prices are going up whether raw materials, imported finished goods, or freight. Actually, for the most part, it is all three. This is creating problems for orders that were priced weeks ago that will now cost more to produce or otherwise get to the customer.
These have been very good times for most, but almost too good. Big backlogs used to give comfort but now those backlogs have become a problem. So with prices going up and time of delivery pushing out, it will take some working together to deal with these issues. The industry as competitive as it is, generally comes together. These times seem to be the best time to work better together. No one likes price increases but there are times that they have to go up and this seems to be one of those times. It has been tough enough on manufacturers, distributors, and dealers alike. But we need for all to be able to survive.
The economic news continues to be in a mostly good place, with hopes this will continue well into 2021. Let’s hope that those expectations continue to provide for continued good business for the industry as well.
