Executive Summary

We knew that the good business in late 2020 and 2021 would not continue. No one we talked to thought it would last as long as it did. Yet everyone hated to see the good times end, as it has been a long time (if ever) that business was that good. But no matter who we talked with; it was always a discussion of it’s just a matter of time until the slowdown starts.

As the slowdown happened, the results have been a bit harsh as to how slow it has become. Maybe it does not feel so bad for some since backlogs were built so high, production and shipping have been able to keep things moving, but it is beginning to feel not so good as backlogs have declined significantly for so many. The survey results continue to be difficult to describe as the comparisons are really not that meaningful on an overall basis. Company to company may be somewhat easier, but with price increases and changes in business, freight rates, etc., it is hard to determine other than to say that when orders are off 25 to 30%, it just doesn’t feel very good.

Thank goodness for the large backlogs that were built, as production and shipping have been able to continue for most. Many think that this coming recession (if not already in one) will be short-lived. The living off backlogs has allowed many to weather the storm, but as we have heard from some, portions of the backlogs have turned out not to be so solid, especially in the lower-end products where custom is not as important. The results of our survey show year-to-date orders down 29% and shipments up 5%.

Receivable levels seem in line but are going to take some managing as dealers are slowing down, making them need some leeway from time to time, which most have not been getting.

With inventories typically a big percentage of working capital, the large build-up we have seen in inventories, is going to have to be dealt with. Plus, as freight costs are coming down as well as some raw materials, there are going to have to be some price concessions, even though some of the items in inventory had higher costs associated with them.

National

Consumer Confidence

The Conference Board’s Consumer Confidence Index increased in December after two monthly declines. The Index increased to 108.3 from 101.4. The Present Situation Index increased to 147.2 from 138.3 and the Expectations Index increased to 82.4 from 76.7. The report noted that the Expectations Index near 80 is associated with a recession.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board said “The Present Situation and Expectations Indexes improved due to consumers’ more favorable view regarding the economy and jobs. Inflation expectations retreated in December to their lowest level since September 2021, with recent declines in gas prices a major impetus. Vacation intentions improved but plans to purchase homes and big-ticket appliances cooled further. This shift in consumers’ preference from big-ticket items to services will continue in 2023, as will headwinds from inflation and interest rate hikes.”

Housing

Existing-home sales declined for the tenth month in a row in November with all four major U.S. regions recording month-over-month and year-over-year declines. Year-over-year, sales dropped by 35.4%. The results for single-family sales were similar to the overall results.

NAR Chief Economist Lawrence Yun on the poor results said “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”

Sales of new single‐family houses in November 2022 were 5.8% above the revised October rate but were 15.3% below the November 2021 estimate.

Privately‐owned housing starts in November were 0.5% below the revised October estimate and were 16.4% below the November 2021 rate. Single‐family housing starts in November were 4.1% below the revised October results.

Regionally compared to November 2021, single-family starts were down 3.2% in the Northeast, 16.7% in the Midwest, 33.6% in the South, and 35.7% in the West.

Other

Advance estimates of U.S. retail and food services sales for November 2022 were down 0.6% from the previous month, but up 6.5% above November 2021. Total sales for the period of September 2022 through November 2022 were up 7.7% from the same period a year ago.

Retail trade sales were down 0.8% from October 2022, but up 5.4% above last year. Gasoline stations were up 16.2% from November 2021, while food services and drinking places were up 14.1% from last year.

Sales at furniture and home furnishings stores were down 3.2% from November 2021. Sales at these stores were 1% ahead of last year through November.

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in November on a seasonally adjusted basis, after increasing 0.4% in October. Over the last 12 months, the all-items index increased 7.1%. The index for shelter was by far the largest contributor to the monthly all-items increase, more than offsetting decreases in energy indexes.

The all-items index increased 7.1% for the 12 months ending November; this was the smallest 12-month increase since the period ending December 2021. The all-items less food and energy index rose 6.0% over the last 12 months. The energy index increased 13.1% for the 12 months ending November, and the food index increased 10.6% over the last year; all of these increases were smaller than for the period ending October.

Thoughts

So many news reports about so many subjects. Some are real news; others are just opinions about what someone thinks is happening. But we feel that these are concerning times. Economists are saying a recession is coming, most saying early 2023. Many are also saying it should be over by the end of the second or third quarter.

What we are hearing and seeing from our surveys is that the residential furniture industry is probably already in a recession that likely began during the third quarter of 2022. As we noted, the participants in our survey have been able to somewhat weather the storm due to the large backlogs that were built up, allowing continued production and shipping of products. But many have reduced backlogs to pre-pandemic levels and for some, orders are not keeping up with production needs. We realize no one wants to think about people cuts as hard as they have been to find, but it is at least time to give that some thought.

We do know that the reports on consumer confidence and leading economic indicators seem to indicate that demand for big-ticket items has slipped. With that in mind, it is time for most to make some plans for slower business in the new year, at least for some time. We wish we could tell you how much and how long, but that is for each company to decide.

On those negative thoughts, we will wish you a Happy and Healthy New Year that helps each of you to make the best of whatever business comes your way.

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