Smith Leonard PLLC’s January 2023 Furniture Insights

The results of Smith Leonard Accountants & Consultant’s latest survey of residential furniture manufacturers and distributors were less than ideal, but still in line with their expectations. For November 2022, net new orders were off 35% compared to November 2021, in line with recent results for much of the year. But most of the recent comparisons have been to the previous year’s results which were not that strong compared to 2020 results. When 97% of the participants report declining orders for the month, we think it’s safe to say that business is definitely off. Year to date, charges were down 34%, off for 94% of the participants.

The company’s shipments were up by only one percent during November 2021. To date, their shipments have remained up 6% over last year when they were up 23% over the prior year. With shipment dollars exceeding new orders, backlogs fell again, down nine percent from October. Backlogs were now down 52% from a year ago when they were down 50% from November 2020.

Receivable and employee levels continue to appear to be in good shape. Even so, overall inventories are too high, and coupled with retail inventories being increased, it will take some time to bring them down to more reasonable levels.

National Results

Consumer Confidence

Smith Leonard’s Conference Board’s Consumer Confidence Index decreased in January following an upwardly revised increase in December 2022. The Index now stands at 107.1 (1985=100), down from 109.0 in December. The Present Situation Index increased to 150.9 (1985=100) from 147.4 last month. The Expectations Index fell to 77.8 (1985=100) from 83.4 partially reversing its December gain. The Expectations Index is below 80, which often signals a recession within the following year.

“Consumer confidence declined in January, but it remains above the level seen last July, lowest in 2022,” said Ataman Ozyildirim, senior director of Economics at the conference board. “Consumer confidence fell the most for households earning less than $15,000 and for households aged under 35.”

The Expectations Index retreated in January reflecting their concerns about the economy over the next six months. Consumers were less upbeat about the short-term outlook for jobs. They also expect business conditions to worsen in the near term. Meanwhile, purchasing plans for autos and appliances held steady, but fewer consumers are planning to buy a home. Consumers’ expectations for inflation ticked up slightly from 6.6% to 6.8% over the next 12 months, but inflation expectations are still down from its peak of 7.9% last seen in June.

Housing

Existing-home sales fell for the eleventh consecutive month in December, with three of the four major U.S. regions recording monthly drops, while sales in the West remained unchanged. All regions experienced annual declines in the 30-plus percent range. The median existing single-family home price was $372,700 in December, up 2.0% from December 2021.

Sales of new single‐family houses in December 2022 were at a seasonally adjusted annual rate of 616,000, or 2.3% above the revised November rate of 602,000, but were 26.6% below the December 2021 estimate of 839,000. An estimated 644,000 new homes were sold in 2022. This was 16.4% below the 2021 figure of 771,000.

Privately‐owned housing starts in December were at an adjusted annual rate of 1,382,000 or 1.4% below the revised November estimate and 21.8% below the December 2021 rate. Single‐family housing starts in December were at a rate of 909,000 or 11.3% above the revised November. An estimated 1,553,300 housing units were started in 2022. This was 3.0% below the 2021 figure of 1,601,000.

Other

Advance estimates of U.S. retail and food services sales for December 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were down 1.1% from the previous month, but up 6.0% above December 2021. Total sales for the 12 months of 2022 were up 9.2% from 2021. Total sales for October 2022 through December 2022 period were up 6.7% from the same period a year ago.

Retail trade sales were down 1.2% from November 2022, but up 5.2% last year. Non-store retailers were up 13.7% from December 2021, while food services and drinking places increased by 12.1% from last year. Sales at furniture and home furnishings stores were up 0.3% from December 2021 and up 1% for the year. Sales for the year 2021 versus 2020 were up 26.4% so the 1% increase in 2022 was acceptable considering the comparison.

The index for gasoline was by far the largest contributor to the monthly all-items decrease, more than offsetting increases in shelter indexes. The food index increased by 0.3% over the month. The energy index decreased 4.5% over the month as the gasoline index declined.

Final Thoughts

There continue to be discussions as to recession or not. Many feel we are already in one and others say not yet, and even some say, probably will not be. We think in today’s environment, it is not only an industry-by-industry debate but probably more of a company-to-company debate.

In the meantime, we continue to suggest that plans be made for several what-if scenarios so that as they play out whichever way, you have somewhat of a plan in place to deal with whatever comes your way.