The latest survey of residential furniture manufacturers and distributors reflected similar results as we have seen recently, with new orders in August 2023 up 29% over August 2022, but August 2022 orders were down 34% from August 2021. Orders in August 2021 were down 14% from August 2020. As you probably recall, new orders from June 2020 up until later that year were at historically high levels as demand was at unheard-of levels. The August increase brought order levels year to date back to just about even with the same period of 2022. Year-to-date August 2022 orders were down 29% after being up 29% in the same period for 2021. If that isn’t confusing, do not even try to think about the impact of price increases and later decreases in freight costs as well as other factors.
Shipments in August were down 17% from August 2022 and down 18% year to date, after a 6% increase year to date in 2022 versus 2021. Shipment results are also confusing as backlogs have been built up so high, then as orders began to slow, shipments could be maintained by shipping from the large backlogs. The shipments comparisons will remain difficult for a while as many have brought their backlogs down to historical levels.
Backlogs fell again, down 51% from August 2022. It appears that most are now getting the backlogs back to more normal levels.
Receivable and inventory levels also appear in line, with inventories down 32%. Factory and warehouse payrolls continued to decline in August as would be expected based on the declining overall business.
The Conference Board Consumer Confidence Index® declined moderately in October to 102.6, down from an upwardly revised 104.3 in September. The Present Situation Index declined to 143.1 from 146.2. The Expectations Index fell slightly to 75.6 in October, after declining to 76.4 in September. The Expectations index is still below 80—the level that historically signals a recession within the next year. Consumer fears of an impending recession remain elevated, consistent with the short and shallow economic contraction we anticipate for the first half of 2024.
Dana Peterson, Chief Economist at The Conference Board said, “Write-in responses showed that consumers continued to be preoccupied with rising prices in general and for grocery and gasoline prices in particular. Consumers also expressed concerns about the political situation and higher interest rates. Worries around war/conflicts also rose, amid the recent turmoil in the Middle East.”
The Conference Board Leading Economic Index® (LEI) for the U.S. declined by 0.7% in September 2023 to 104.6, following a decline of 0.5% in August. The LEI is down 3.4% over the six-month period between March and September 2023, an improvement from its 4.6% contraction over the previous six months (September 2022 to March 2023).
Existing home sales in September fell again in the South, Midwest, and West but increased from August in the Northeast. All regions continued below last September’s sales. Single-family home sales were down 1.9% from August and 15.8% from the prior year. The median existing single-family home price was $399,200 in September, up 2.5% from September 2022.
Sales of new single‐family houses in September 2023 were at a seasonally adjusted annual rate of 759,000 or 12.3% above the revised August rate and were 33.9% above the September 2022 estimate.
The median sales price of new houses sold in September 2023 was $418,800. The average sales price was $503,900. The seasonally adjusted estimate of new houses for sale at the end of September was 435,000, representing a 6.9 month supply at the current sales rate.
Compared to September 2022, new residential sales were up 63.3% in the Northeast, 4.7% in the Midwest, 53.3% in the West, and 29.9% in the South.
Comparing September 2023 to September 2022, single-family starts were up 8.6% overall. Regionally, single-family starts were down 21.7% in the Northeast and 1.6% in the Midwest, while up 4.7% in the West and 16.0% in the South.
Advance estimates of U.S. retail and food services sales for September 2023, were up 0.7% from the previous month, and up 3.8% above September 2022. Total sales for the July 2023 through September 2023 period were up 3.1% from the same period a year ago.
Retail trade sales were up 0.7% from August 2023, and up 3.0% above last year. Non-store retailers were up 8.4% from last year, while food services and drinking places were up 9.2% from September 2022.
Sales at furniture and home furnishings stores were down 5.9% from September 2022. On an unadjusted basis, sales at these stores were down 4.4% year to date.
The Consumer Price Index (CPI-U) rose 0.4% in September after increasing 0.6% in August. Over the last 12 months, the all-items index increased 3.7% before seasonal adjustment. The index for shelter was the largest contributor to the monthly all-items increase, accounting for over half of the increase. An increase in the gasoline index was also a major contributor to the all-items monthly rise.
Overall, the residential furniture business is probably sluggish at best. And there seem to be many reasons. While the overall economy seemed to grow at a strong pace in the third quarter, some of those measurements do not really reflect what consumers are seeing and doing. Yes, they are still spending but the rising costs of living clearly have an impact on furniture spending. Add to that the rising mortgage interest rates, there are just not enough dollars left in consumer budgets to pay for deferrable purchases.
The leading economic indicators have declined for over a year and a half. Nine of the indexes ten components have either declined or were flat in September. The Conference Board forecasts that the trends are such that a shallow recession is expected in the first half of 2024. If that is true, the residential side of the business may face more turbulence as many would say certain parts, if not most parts, are already in somewhat of a recession in 2023.
On the other hand, we thought the October High Point Market was well attended, and once again, the “mood” of Market was very good. Great new product was shown. Even though many echoed the thoughts that attendees loved our product and were very happy with our showing, the only problem was the “they must have forgotten their pens.” But that great product will sell eventually as consumers come back to the stores or their designers suggest they just have to have some of the new product. People came and some will buy. We hope that this “slow down” ends soon, but think one needs to be prepared to ride it out a bit longer than most probably think.
According to our latest survey of residential furniture manufacturers and distributors, new orders in August 2023 were up 29% over August 2022. Unfortunately, the comparison is not quite as rosy as it may seem as new orders in August 2022 were down 34% from August 2021 and August 2021 orders were down 14% from August 2020. So as has been the case for over a couple of years, the comparisons can be misleading without context. Add to that the impact of price increases and lately price decreases, primarily for foreign freight charges, and the comparisons become even more murky. The order increases were reported for some 72% of the participants.
Year to date, new orders were about even for the first eight months of the year in 2023 versus 2022. Year-to-date new orders were down 29% in 2022 compared to 2021, when they were up 29% from 2020. The comparability issues were the same for the first 8 months, but just at different levels throughout the periods. For 2023 year to date, new orders were up for about 40% of the participants.
Shipments and Backlogs
Shipments in 2023 continued to lag behind last year as 2022 results continue to show the impact of shipping from the high levels of backlogs built up in 2020 and 2021. Shipments in August were down 17% from August 2022. Shipments were up 34% over July, primarily because of the normal July shutdowns for vacations. Shipments in August were down for some 72% of the participants.
Year to date, shipments were down 18% from 2022, when they were up 6% over 2021. Shipments in 2021 were up 34% year to date over 2020 but remember that 2020 companies were shut down for 2 to 3 months due to the pandemic.
Backlogs continued to fall, down 51% from last year. The dollar amount of backlogs is probably higher than piece counts, again due to price increases built in much of the new backlogs, even considering freight declines.
Receivables and Inventories
Receivable levels were down 30% from October 2022. With year-to-date and even monthly sales down in the 17 to 18% range, the decline in receivables appears out of line, but we believe that many of our participants in the upholstery business, tend to report their receivables net of customer deposits. As backlogs have been declining, the amount of customer deposits has also declined, which would make the change in net receivables appear to be higher. As backlogs continue to get back to normal levels, we think the receivable results should get back in line.
Inventory levels fell again in August, down 2% from July and down 32% from last August. It appears that inventories are much more in line with current business levels after the large buildups over the last couple of years.
Factory and Warehouse Employees and Payroll
Factory and warehouse labor results continue to seem in line with current business conditions as the number of employees was down 8% from August 2022, while about even with July. Payrolls were down 11% from last August and down 8% year to date, even considering the wage increases given over the last couple of years.