Executive Summary

Once again, our survey results need some explanations. According to our latest survey, new orders in April 2022 were down 20% from April 2021. Orders were down for approximately 70% of the participants. Due to the unusual growth in orders in 2020 and 2021, we compared April 2022 to April 2019 and found there to be a 4% increase in that comparison. Again, we expect most or all of that increase was a result of some of the price increases over the last year. Year to date, orders were down 21% as each month of 2022 has shown double-digit declines in orders. Compared to 2019, year-to-date orders were up 8%.

Shipments increased 13% over April 2021 as shipments were made from the large backlogs that have been carried. Year to date, shipments were up 6%. As shipment dollars exceeded order dollars, backlogs fell 5% from March. Backlogs were 9% ahead of April 2021 and were 275% higher than April 2019. So, even with the decline in orders, shipments should be ok for the next several months.

Receivable levels were a bit high, but we think that is likely timing as we know of no reason for them to be out of line. Inventories went up again increasing 6% from March and up 39% from April 2021. This level of increase seems to be somewhat out of line and we hope to see them start to trend down. We know that due to the shortages of both imported goods and raw materials during the pandemic, most are not wanting to get caught in short supply, so we expect overall inventories to be higher than historical levels.

National

Consumer Confidence

“Consumer confidence fell for a second consecutive month in June,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “While the Present Situation Index was relatively unchanged, the Expectations Index continued its recent downward trajectory—falling to its lowest point in nearly a decade. Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices. Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by yearend.”

The whole report, covered in a deeper dive, indicated consumer spending will likely decline as the year progresses.

Housing

Existing-home sales retreated for the fourth consecutive month in May, according to the National Association of Realtors®. Month-over-month sales declined in three out of four major U.S. regions, while year-over-year sales slipped in all four regions.

Single-family home sales declined 3.6% in April and were down 7.7% from one year ago. The median existing single-family home price was $414,200 in May, up 14.6% from May 2021. This was the first time the median price had ever been over $400,000.
“Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance,” said NAR Chief Economist Lawrence Yun.

Sales of new single‐family houses in May 2022 were at a seasonally adjusted annual rate of 696,000, or 10.7% above the revised April rate but 5.9% below May 2021. The median sales price of new houses sold in May 2022 was $449,000. Regionally, compared to May 2021, May 2022 sales were down 42.5% in the Northeast and 37.0% in the Midwest, while sales were up 1.5% in the South and 0.5% in the West.

Privately‐owned housing starts in May were 14.4% below the April estimate of 1,810,000 and were 3.5% below the May 2021 rate of 1,605,000. Single‐family housing starts in May were 9.2% below April. Single-family starts in May compared to May 2021 were down 5.3%; down 4.9% in the Northeast, 12.8% in the Midwest, 12.1% in the West, but about even in the South.

Other

Advance estimates of U.S. retail and food services sales for May 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were down 0.3% from the previous month, but 8.1% above May 2021. Total sales for the March 2022 through May 2022 period were up 7.7% from the same period a year ago. Retail trade sales were down 0.4% from April 2022, but up 6.9% above last year.

Sales at furniture and home furnishings stores in May were up 1.9% over May 2021. Sales at these stores were up 2.5% year to date through May 2022.

“The US LEI (Leading Economic Index) fell again in May, fueled by tumbling stock prices, a slowdown in housing construction, and gloomier consumer expectations,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The index is still near a historic high, but the US LEI suggests weaker economic activity is likely in the near term—and tighter monetary policy is poised to dampen economic growth even further.”

The consumer price all-items index increased 8.6% for the 12 months ending May, the largest 12-month increase since the period ending December 1981. The all items less food and energy index rose 6.0% over the last 12 months.

Total nonfarm employment rose by 390,000 in May and the unemployment rate remained at 3.6%.

Thoughts

Interesting times are here for sure. I made a presentation mid-June for the AHFA Logistics conference and quoted five different comments by some major bankers and economists. Three said recession is coming (Actually Jamie Dimon with JP Morgan said not a storm but a hurricane) and two said not one expected. I guess, as usual, some three or four months after one starts, if it actually does, someone will tell us. In the meantime, it is pretty hard to plan.

The typical days of trying to project out the year are not here anymore. Usually, we try to compare to the prior couple of years and factor in a bit of growth or maybe even a slight decline, but when you start the year with four months of double-digit declines in orders, yet shipments are up 6% year to date and shipments up double digits the last two months, what’s next? Backlog’s still strong so that is good. But word is that retail is over-inventoried. Will those orders hold up?

Now, inflation is definitely a factor. The Federal Reserve has hit interest rates hard with more expected. But has the economy sputtered enough already?

We wish we had the answers, but we do not. So, all we can do is what we suggested at the conference. Take a look at where you are and plan for what you think could be a decline in business or even your worst case. Decide what you will need to look like if that happens. Then if it does, you have a plan. You don’t have to put it in place yet, just know what you would do. Hopefully, you will not need it.

Here’s to a great 4th of July week. Happy Birthday, America.

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