Executive Summary

If you are interested in the details, please read the full summary on orders and shipments later in the body of the newsletter, but suffice it to say, comparison percentages are difficult to deal with these days. When 2022 is compared to 2021, it is clear business has not only slowed as we expected after the fantastic growth we had in 2020 and 2021 but also the slowdown in the economy as a whole has clearly affected the levels of business today. We continue to hear more. Add to that confusion and realize that price increases during 2020 and 2021 and even some in 2022, make comparisons difficult, to say the least. Oh, and now container freight costs are dropping even though domestic freight is rising.

Obviously, we are in some turbulent times. Are we in a recession for the whole economy? While some indicators continue to say we are not, it sure is beginning to feel like we are.

Backlogs continue to fall as shipments exceed new orders. Cancellations and clean-up are also affecting backlogs. While backlogs are still higher than normal, it appears that many have begun to catch up, so not everyone has much longer to depend on backlogs to bolster shipments. But the good news is, there is still a good number that still have excess backlogs that should help weather some of the economic storms we are in.

Inventories continue to be a source of concern. With inventories at wholesale, as well as at retail, very high, and hearing that many overseas producers are also too high, we are concerned that there will be significant discounting in order to reduce inventories. We hope if this happens, it will not be due to price reductions but only to inventory clearance. It has taken too long to get furniture prices up to 2022 levels. We hope that those efforts will not go away due to this slowdown and imbalance of inventories.

National

Consumer Confidence

The Conference Board’s Consumer Confidence Index improved again in September, increasing to 108.0 from 103.6. Both the Present Situation and Expectations Indexes increased. “Consumer confidence improved in September for the second consecutive month supported in particular by jobs, wages, and declining gas prices,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Concerns about inflation dissipated further in September—prompted largely by declining prices at the gas pump—and are now at their lowest level since the start of the year. Looking ahead, the improvement in confidence may bode well for consumer spending in the final months of 2022, but inflation and interest-rate hikes remain strong headwinds to growth in the short term.”

Housing

Existing-home sales slipped for the seventh straight month and were down in August compared to a year ago in all four regions of the country. Single-family home sales decreased to a seasonally adjusted annual rate of 4.28 million in August, down 0.9% from 4.32 million in July and down 19.2% from the previous year. The median existing single-family home price was $396,300 in August, up 7.6% from August 2021.

“In a sense, we’re seeing a return to normalcy with the home-buying process as it relates to home inspections and appraisal contingencies, as those crazy bidding wars have essentially stopped,” said NAR President Leslie Rouda Smith, a REALTOR® from Plano, Texas.

The Fed raising interest rates also causes mortgage rates to increase which also slows the rate of home buying.
Sales of new single‐family houses in August 2022 increased 28.8% above the revised July rate of 532,000, but were 0.1% below the August 2021 estimate of 686,000.

The seasonally adjusted estimate of new houses for sale at the end of August was 461,000. This represents a supply of 8.1 months at the current sales rate.

Other

Advanced estimates for U.S. retail and food services sales for August 2022 were up slightly from July on an adjusted basis and were up 9.1% from August 2021. Year to date, sales were up 10.3%. Both the monthly and year-to-date results were significantly influenced by sales at gasoline stations and food services and drinking places. Sales at furniture and home furnishings stores were flat compared to last August and up 1.4% year to date.

The Consumer Price Index increased slightly from July but remained up 8.3% for the 12-month trailing period. As we noted in the consumer confidence comments, consumers are giving a lot of weight to gas prices going down, even though still too high, versus paying attention to how high prices are overall.

The Conference Board report on the Leading Economic Indicators noted another decline. It stated, “Economic activity will continue slowing more broadly throughout the US economy and is likely to contract.”

The good news from the reports was that the Employment Situation continues to be positive with good job growth. That of course overshadows the ability to find good people to hire.

Thoughts

As we noted, trying to make sense of the changes in the results is very difficult. As we talk with folks, most are using different methods of comparison, from adjusting order and shipment rates for price increases to comparing unit sales. We all know that unit sales on an overall basis are next to impossible, but any given company or division may be able to do so.

We decided to talk with some folks about what is happening now since July seems like a long time ago. Most of the comments we have received are that the drop in volumes seems to be leveling out some with some even noting some, albeit small growth. Is it due to the end of the summer doldrums, as we used to see, or just giving us hope? We will see as the year progresses.

There is some good news in that raw material prices seem to have leveled off with some reporting declines. Ocean Freight has dropped significantly though domestic freight is still an issue. The shortage of drivers and higher gas prices continue to make domestic deliveries an issue.

The fall High Point Furniture Market is coming on fast. Activity here is really starting to show. While most admit they have too much in their warehouses, one still has to look at new products and by the time most can be delivered, we hope some warehouse space has been opened up due to sales of merchandise. Once again, we hope that big sell-offs of inventory are done with a discount to move inventory versus price reductions. It has been too hard to get needed price increases, so we would encourage folks to be careful with how inventory is moved.

We hope all of you can stay safe with this hurricane-bearing down on the Southeast Coast.

SIGN UP FOR FURNITURE INSIGHTS | VIEW OUR FURNITURE INSIGHTS BLOG