Executive Summary

Our report, once again, sounds like a bit of a broken record as explanations are needed to discuss our latest results. And in some respects, it would really be easier to discuss in person and take a few more hours to research all comparisons. That said, the results of May 2022 were ugly at the first glance. New orders were down 41% from May 2021. But May 2021 orders were up 47% over May 2020. Year-to-date, new orders were down 25% from last year, but the year-to-date numbers were 2% higher than in 2019. Of course, you have to factor in the price increases given in late 2020 and all of 2021, and even into the first part of 2022.

Shipments were much better, up 10% over May 2021 and up 7% year to date. Shipments were up for 76% of the participants year to date. As shipments exceeded new orders, backlogs dropped again falling 4% from last May when they were up 214%. One thing that is affecting new orders is that we ask for those to be present net of cancellations. For the past few months, participants have taken the time to clean up their backlogs. In addition, recently there have been several companies who have cancelled orders due to the slowdown in business at retail. Some who have had significant orders posted to make sure they were in the cue at suppliers have found that they no longer need the large shipments of standard goods.

Receivable levels remain in good shape though we are hearing some slowdown in payments recently. Inventories on the other hand keep growing and were up 41% over May last year and up 9% from April. While many retailers have been quoted as having their warehouses full and some even leasing more space, it appears that some manufacturers and distributors are also over-inventoried.

The number of factory and warehouse employees was down 1% from April but this does not reflect some of the recently announced layoffs.

National

Consumer Confidence

The Conference Board Consumer Confidence Index® decreased in July, following a larger decline in June. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell to 141.3 from 147.2 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—ticked down to 65.3 from 65.8.

“Consumer confidence fell for a third consecutive month in July,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decrease was driven primarily by a decline in the Present Situation Index—a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady, but remained well below a reading of 80, suggesting recession risks persist. Concerns about inflation—rising gas and food prices, in particular—continued to weigh on consumers.”

The University of Michigan Surveys of Consumer report also reflected much lower confidence. The report indicated that the index fell 14.4% from May, the lowest reading on record. Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession.”

Housing

Total existing-home sales (completed transactions that include single-family homes, townhomes, condominiums, and co-ops) dipped 5.4% from May to a seasonally adjusted annual rate of 5.12 million in June. Year-over-year, sales fell 14.2% (5.97 million in June 2021).

“Falling housing affordability continues to take a toll on potential home buyers,” said NAR Chief Economist Lawrence Yun. “Both mortgage rates and home prices have risen too sharply in a short span of time.” 

But like all the comparisons recently, you have to look back at what you are comparing to. June 2021 sales were up 22.9% from June 2020. It is really difficult to just look at this year and talk about it “being off” when the prior year was so high. We are seeing the same difficulties looking at furniture results.

Sales of new privately owned homes were down significantly in all four regions compared to June 2021 and down 17.4% overall compared to 2021.

Privately‐owned housing starts in June were 2.0% below the revised May estimate and were 6.3% below the June 2021 rate. Single‐family housing starts in June were 8.1% below the revised May results.

Single-family starts in June were 15.7% below June 2021. Single-family starts compared to June 2021 were down 40.7% in the Northeast, 10.3% in the South, and 34.3% in the West, while starts were up 13.1% in the Midwest.

Other

The U.S. Census Bureau announced advance estimates of U.S. retail and food services sales for June 2022 increased 1.0% from the previous month, and 8.4% above June 2021. Total sales for the period of April 2022 through June 2022 were up 8.1% from the same period a year ago. Sales at furniture and home furnishings stores on an adjusted basis were up 4.6% over June 2021. Sales at these stores were up 2.9% over the first six months of the year.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.3% in June on a seasonally adjusted basis after rising 1.0% in May. Over the last 12 months, the all-items index increased 9.1% before seasonal adjustment. The increase was broad-based, with the indexes for gasoline, shelter, and food being the largest contributors. The energy index rose 7.5% over the month and contributed nearly half of all items increase, with the gasoline index rising 11.2% and the other major component indexes also rising. The food index rose 1.0% in June, as did the food at home index.

Total nonfarm payroll employment rose by 372,000 in June, and the unemployment rate remained at 3.6%. Notable job gains occurred in professional and business services, leisure and hospitality, and health care.

“The US LEI declined for a fourth consecutive month suggesting economic growth is likely to slow further in the near-term as recession risks grow,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Consumer pessimism about future business conditions, moderating labor market conditions, falling stock prices, and weaker manufacturing new orders drove the LEI’s decline in June.

“Amid high inflation and rapidly tightening monetary policy, The Conference Board expects economic growth will continue to cool throughout 2022. Accordingly, we’ve downgraded our forecast of 2022 annual Real GDP growth to 1.7% year-over-year (from 2.3%), while 2023 growth was downgraded to 0.5% YOY (from 1.8%).”

Gross domestic product fell in the second quarter by 0.9% according to the first estimate. GDP fell by 1.6% in the first quarter.

Thoughts

From most of what we are hearing, it seems that the higher inflation is probably affecting retail more at the lower and lower-middle price points. While most seem to feel that business overall is slowing some, those lower price points seem to be hurting more. We all knew that business would not remain at the high levels of the last part of 2020 and all of 2021, but the drop in business seems deeper than might have been expected due to the overall economic decline.

While some are touting the recent drop in gas prices at the pump, prices remain significantly higher than even six months ago. Are we in a recession? Some say the two-quarter drop in GDP says we are. Others say no that GDP is not the correct measure. In the last 50 years, there has been no recession when the unemployment rate has been less than 4%. And since we are still adding jobs, it appears that rate will continue to be low.

But whether we are or not, clearly the economy has stalled. This will help with inflation as long as it doesn’t go too deep.
We suggest you read some of the full reports in our Deeper Dive section for a better understanding of what others are saying.

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