Executive Summary

According to our latest survey of residential furniture manufacturers and distributors, good business continued through October. New orders in October increased over the same period from a year ago for the fifth straight month, increasing 40% over October 2019. This 40% increase followed a 43% increase reported in September, 51% in August, 39% in July and a 30% increase in June after a three-month period of significant declines when the pandemic started. Some 77% of the participants reported increased orders in October. The increase in October brought the year to date increase to 14%, up from 11% reported last month. For the 10 months ended October, orders were up for 59% of the participants. We have continued to hear strong order performance from many we have talked to recently, though we are hearing that the size of the increases has slowed.

Shipments were up 8% over October 2019 after a 4% increase in September. It appears that imported goods are starting to flow as well as shortages of raw materials for domestic manufacturers has started to diminish, though prices of certain materials seem to be rising due to the shortages. Year to date, shipments remained 8% below the pace of the same period last year.

Backlogs continued to rise as orders once again surpassed shipments. Backlogs at the end of October were 141% higher than October 2019, again causing issues at the retail level. The backlogs are having trouble working down as, again, the flow of goods from primarily Asia has been slow to catch up, as well as the lack of workers in the domestic manufacturing sector.

Receivable levels continued to appear to be in line and conversations with manufacturers and distributors indicate that customers are continuing to pay on time for the most part.

Inventory levels remained 10% below last year’s levels, as they have not been able to catch up with the order rates due to the supply issues.

The number of factory and warehouse employees remained 5% below last year. Most of the manufacturers we have talked to indicate that finding people is their main issue. The recent stimulus bill that passed included an increase in unemployment benefits. While good for the unemployed, it does not help in recruiting employees.

National

Consumer Confidence

The Conference Board Consumer Confidence Index® declined in December, after decreasing in November. The Index now stands at 88.6 (1985=100), down from 92.9 in November. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – decreased sharply from 105.9 to 90.3. However, the Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – increased from 84.3 in November to 87.5 this month.

“Consumers’ assessment of current conditions deteriorated sharply in December, as the resurgence of COVID-19 remains a drag on confidence,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “As a result, consumers’ vacation intentions, which had notably improved in October, have retreated. On the flip side, as consumers continue to hunker down at home, intentions to purchase appliances have risen. Overall, it appears that growth has weakened further in Q4, and consumers do not foresee the economy gaining any significant momentum in early 2021.”

Housing

Existing home sales fell in November after rising for five straight months. Each of the regions fell from October levels but all four regions sold significantly more than November a year ago. Total existing home sales were up 25.8% over November 2019 with single family sales up 25.6%. All four regions reported similar results.

The median sales price for all housing types rose 14.6% and all four regions experienced similar growth in prices. Housing inventory fell 9.9% from October and was down 22% from a year ago.

New residential sales experienced similar results with sales down 11.0% from October but up 20.8% over November 2019. New residential sales were up significantly in all regions except the Midwest where they were down 24.4%. Housing starts in November were up 12% over November 2019. Single family starts were up 27.1% over November 2019.

Other

U.S. retail and food services sales for November 2020 were down 1.1% from the previous month, but 4.1% above November 2019. Total sales for the September 2020 through November 2020 period were up 5.2% from the same period a year ago. Retail trade sales were down 0.8% from October 2020, but 7.1% above last year. Nonstore retailers were up 29.2% from November 2019, while food services and drinking places were down 17.2% from last year.

Sales at furniture and home furnishings stores in November were up 3.65% over November 2019. Year to date, sales at these stores were down 6.4% from the same period a year ago, as they continue the rebound from the significant decreases during the early months of the pandemic.

Consumer prices increased 0.2% in November as the all items index was broad based with no component accounting for the slight increase. The index for home furnishings increased for the month.

The Conference Board Leading Economic Index increased again in November, up 0.6% but the report indicated its pace of improvement has been decelerating in recent months, suggesting a significant moderation in growth as the US economy heads into 2021.

Total nonfarm payroll employment rose by 245,000 in November, and the unemployment rate edged down to 6.7%. The number of unemployed persons, at 10.7 million, continued to trend down in November but was 4.9 million higher than in February.

Thoughts

As we write this, we realize that 2020 is almost over. Most of us know better than to wish our lives away, but we have never seen so many people wishing for a year to end. Unfortunately, remnants of troubles from 2020 will still be with us as we start 2021, but there is hope for the new year with the creation of the vaccine to help us mitigate and hopefully eliminate the virus that has caused this pandemic.

Consumer confidence has been declining, but that seems to be more on the macro level. Travel and entertainment declines are part of the reason. But as we have said before, the decline in these areas has put more money in consumer’s pockets and they seem to be spending it on their homes, including furniture.

The significant gains in our surveys of residential furniture manufacturers and distributors over the past few months has really been great for a group of folks that really needed a boost in sales. We do expect that significant growth to slow somewhat in the next few months but most whom we have talked with seem to believe results will stay positive at least through the first part of the year.

We all hope that the vaccine will allow folks to get back to some sense of normalcy, but time will tell. Several surveys seem to indicate that many people are afraid of the vaccine and will not take it due to concerns over the long-term impact. So, the virus may stay with us for some time in some fashion. But let’s hope that enough people do decide to get the vaccine and that it works long term to put this one behind us.

Happy New Year from all of us at Smith Leonard. Here’s to a much better 2021 for all of us for our own sanity’s sake.