HIGH POINT, N.C. -- Since each month lately has been full of explanations, in trying to compare to last year and 2019, etc., we (Smith Leonard) have added a new twist to this month’s explanations. We saw new orders drop by 39% from June 2021.

Since June 2021, new orders were only up 7% over June 2020, we dug a little deeper into the specifics of the participants’ results and after some questions, we began to realize something that had started last month, continued in a larger way this month. Cancellations. We also believe that among all the craziness of the flock of new orders over the past two years, we think that some backlogs needed to be reviewed and cleaned up. That also affected the new orders as we ask for new orders to be reported as net of cancellations.

With that said, we have determined that it is probably better to focus more on year-to-date results, even though we know that those results are likely confusing. Year to date, new orders were down 27%. Year-to-date 2021 comparisons were up 51% versus 2020, so even that adds to the confusion since June 2020 was just coming out of pandemic closings. It appears that even though we knew business was expected to slow down, these adjustments make it hard to draw specific conclusions.

On the other hand, shipments are much easier to follow. Shipments in June 2022 compared to June 2021 were up 10% and up 7% year to date. Shipments year to date were up for 76% of the participants. With net orders down and shipments up, backlogs fell 10% from May and were down 17% from June 2021.

Receivables look to be in good shape when considering shipment levels and inventories stayed probably too high with an increase of 31%, but down from 41% last month. Factory and warehouse employment and wages continued the same trends as previously reported.

National consumer confidence
A bit surprising, The Conference Board Consumer Confidence Index® increased in August, following three consecutive monthly declines. The Index improved to 103.2 (1985=100), up from 95.3 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved to 145.4 from 139.7 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—increased to 75.1 from 65.6.

The report said, “Meanwhile, purchasing intentions increased after a July pullback, and vacation intentions reached an 8-month high. Looking ahead, August’s improvement in confidence may help support spending, but inflation and additional rate hikes still pose risks to economic growth in the short term.”

Housing
“We’re witnessing a housing recession in terms of declining home sales and home building,” said Lawrence Yun, the National Association of Realtors Chief Economist. “However, it’s not a recession in home prices. Inventory remains tight and prices continue to rise nationally with nearly 40% of homes still commanding the full list price.” Existing-home sales fell 5.9% and sales fell in all regions of the country.

New residential sales were also down from June as well as significantly down from July 2021. All regions of the country were down significantly.

Other
Advance estimates of U.S. retail and food services sales for July 2022 were virtually unchanged from the previous month, but 10.3% above July 2021. Total sales for the May 2022 through July 2022 period were up 9.2% from the same period a year ago. Retail trade sales were virtually unchanged from June 2022, but up 10.1% above last year. Gasoline stations were up 39.9% from July 2021, while nonstore retailers were up 20.2% from last year. Sales at furniture and home furnishings stores were about flat with June and were up 2.1% over July 2021.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3% in June. Over the last 12 months, the all-items index increased 8.5% before seasonal adjustment.

The gasoline index fell 7.7% in July and offset increases in the food and shelter indexes, resulting in the all-items index being unchanged over the month. Inflation remains a big issue for consumers.

Real gross domestic product (GDP) decreased at an annual rate of 0.6% in the second quarter of 2022, after decreasing 1.6% in the first quarter.

The Conference Board’s report on the Leading Economic Indicators suggested that the risk of a mild recession may be in store for us.

The gross domestic product decreased at an annual rate of 0.6% in the second quarter. In the first quarter, real GDP decreased 1.6%. There are differences of opinion as to whether the theory of two consecutive declines means we are in a recession.

Additional thoughts
Are we headed for a recession or not, or are we already in one? Who knows as economists continue to disagree if we are in one or not, or even if we will have one. No matter, business has slowed, not only in general but definitely in the furniture business. The cancellation of orders has shown up in a pretty big way in our survey, especially for those selling at the lower and middle price points. When cancellations exceed new orders, that is not a good sign.

Yet shipments remain strong which is what leads to cash. We think some companies that still have good backlogs may be able to weather the storm if the “recession,” assuming there is one, does not last too long.

Employment remains strong which usually does not lead to a recession. The interesting thing about employment is that there are so many people getting jobs, yet so many businesses cannot find help.

We were a bit surprised at the increase in confidence, but maybe the decline in gas prices helped consumers to feel better even though still very high.

The Russia-Ukraine deal is still a problem, in a large way due to so many factors. While not quite as much in the news, still there are so many issues relating to supplies and others. We wish we could see an end to it, but we obviously do not know what that might be.