Executive Summary
Last year when we reported that June 2020 orders were up 30% over June 2019, we began to see businesses start back up again in late May and into June. We noted that it may be tough to beat some of those kinds of results at some time in 2021. Well after 12 consecutive months of reporting large double-digit growth in orders, beginning in June of 2020, we are finally going to report 2021 orders compared to one of those double-digit months of growth.
We had thought that we would probably see some declines starting in June which would not be bad, but might “feel” not so good, but the results were positive instead. New orders were actually up 7% in June 2021 over the 30% increase reported in the comparisons of June 2020 vs June 2019. The results were not up for all, but some 66% of the participants reported increases over June 2020.
Year to date, new orders were up 51% over the first half of 2020 and up for 94% of the participants. For comparison, new orders in the first 6 months of 2021 were up 37% over the first 6 months of 2019. We continue to think that the comparisons to 2020 for the rest of this year will be tough to beat.
With backlogs so high, shipments would be expected to show some nice results and they did, with a 38% increase over June 2020. Keep in mind that many of the companies were just getting started back up in June of last year. Shipments in June 2020 were down 7% from 2019. Year to date, in 2021, shipments were up 42% over the same period a year ago. Backlogs remained at extremely high levels, up 153% over June 2020 and were up 3% from May as June orders in dollars were more than the shipment dollars.
Most of the issues with shortages of materials, labor and imported finished goods continued to exist. While some shortages got better, others cropped up. As we write this, COVID cases are on the rise again and some countries have either shut down or have severely restricted production and shipping.
Our other indicators, receivables and inventories, seem in line, though it is hard to tell regarding inventories as it all depends on what is being held that cannot be shipped. Employees and payrolls are still reflective of shortages domestically as well as in other countries.
National
Consumer Confidence
The Conference Board Consumer Confidence Index® declined in August, following a decrease in July (a downward revision). The Index now stands at 113.8 (1985=100), down from 125.1 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell to 147.3 from 157.2 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 91.4 from 103.8.
“Consumer confidence retreated in August to its lowest level since February 2021 (95.2),” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects. Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead.
Consumers’ optimism about the short-term business conditions outlook deteriorated in August as 22.9% of consumers expect business conditions will improve, down from 30.9%. The short term labor market also declined as job availability fell. Prospects for increases in income also fell.
Housing
Existing home sales grew again in July vs June and were up overall compared to July a year ago. The report indicated that inventories are picking up so that should “lessen the intensity of multiple offers”. It was noted that much of the recent sales growth has been in the upper-end markets while growth is lower in the mid to low tier markets due to fewer starter homes being built. The median home prices continued to rise, up for the 113th straight month, up double digits in all four regions of the country.
Sales of new single-family houses in July were up slightly over June but were 27% lower than July 2020. Sales were down double digits in all four regions. Single family housing starts in July were 4.5% below June but were up 11.7% over July 2020.
Other
U.S. retail and food services sales in July were down slightly from June but were 15.8% ahead of July 2020. Retail trade sales were down 1.5% from June but were up 13.3% over July 2020. Clothing and clothing accessories led the way, up 43.3% over July last year. Sales at furniture and home furnishings stores were up 15.6% over July 2020 and up 38.5% year to date.
The consumer price index increased 0.5% in July after rising 0.9% in June. Over the last 12 months, the all items index increased 5.4%. The index for all items less food and energy rose 4.3% over the last twelve months while the energy index rose 23.8%. The index for food increased 3.4% for the 12 month period. Along with shelter and new vehicles, the indexes for recreation, medical care and personal care increased.
Total nonfarm payroll employment rose by 943,000 in July and the unemployment rate declined to 5.4%. The number of long-term unemployed fell by 560,000 to 3.4 million, 2.3 million higher than February 2020.
The Conference Board Leading Economic Index increased 0.9% in July after increasing 0.5% in June and 1.2% in May. In the second estimate, Gross Domestic Product increased 6.6%.
Thoughts
As I reread last month’s thoughts, I suppose we could just say “ditto”. But we would need to add that the issues with COVID cases on the rise has become an even bigger issue. Several of the Asian countries have seen significantly more cases, with Vietnam hit very hard. Ho Chi Minh City has significantly tightened their restriction, which has yielded significant reductions in production.
Freight issues are a major problem, with container shortages continuing, causing significant price increases, if you can even get them. Some are blaming some of the large retailers for tying up containers. Labor issues continue. We have read articles about how many are just not looking for jobs. Reasons include not only government stimulus and increases in unemployment checks, but also some have taken the opportunity to start their own small businesses. Some have decided to just retire, and some point to cost of daycare, making it better to just stay home. Others have pointed to the fear of contracting COVID-19.
Expectations are for the overall economy to continue to expand, although at a slower rate, but still expectations are for over 4% into 2022. We would think that the furniture business should continue its expansion as well, with shipments continuing to grow as backlogs are brought down. This would indicate that volume does not appear to be the issue. Profitability may be the problem as costs are going up faster than price increases can be put in place. It is hard to anticipate three months out, when products will be made, based on price lists being put out today.
These issues are significant and tough to deal with when business “feels” really good. But we would say, that as difficult as these times are, they are a lot better than 2008 when new orders were hard to find. Let’s hope by October market and the upcoming fall season that COVID cases are trending downwards.
