Retail, Home & Consumer Data Signal Good News for Home Furnishing

Retail sales moved north in August as consumers stepped up their purchases last month. The U.S. Department of Commerce reported that seasonally adjusted sales of retail and food services rose 0.6% in August, its biggest gain in four months. While auto sales continued to dominate the numbers, home furnishing and furniture stores also made significant improvements.

Retail Sales Surge

Retail sales of home furnishing and furniture stores advanced 0.7% from July and almost 3% from the year-ago period. Sales touched a seasonally adjusted figure of 8.451 billion in August, up from 8.391 billion last month and up from 8.206 billion a year ago. To top it, home furnishing gained an estimated 2.6% in the first eight months of 2014 compared to the same period last year.

Further, with improving housing market scenario it can be vouched that home furnishing and furniture section is well positioned to show improvements in the near future.

Home Builder Confidence Hits 9-Year High

The National Association of Home Builders/Wells Fargo said the U.S. homebuilders’ sentiment touched the highest level since Nov 2005. The sentiment gauge went up to 59 in September from August’s reading of 55. This was also more than the year-ago period’s reading of 57. This is a change of 7.27% from last month and 3.51% from last year.

The single-family home sales component rose to 63, the highest reading since Dec 2013. The estimate of single-family sales for the next six months rose to a 13-month high of 67 from 65. Prospective buyer traffic is estimated to rise to 47, the highest level since Oct 2005.

The Dow Jones U.S. Select Home Construction Index (:DJSHMB) increased by almost 2.5% in the last four weeks.

According to NAHB Chairman Kevin Kelly, “Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction.”

Housing Starts Fall, But Broader Trend Solid

The U.S. Census Bureau and the Department of Housing and Urban Development announced building permits dropped 5.6% from July to a seasonally adjusted annual rate of 998,000 in August. Building permits were expected to come in at 1,062,000. Privately-owned housing starts declined 14.4% in August from July to a seasonally adjusted annual rate of 956,000. This figure was also lower than consensus estimate of housing starts staying at a level of 1,036,000.

However, if compared to year-ago figures, both building permits and housing starts were promising. Building permits were 5.3% higher in August when compared to a year earlier, and housing starts were up 8%. Moreover, if the average of the last two months of building permits and housing starts are considered, it still stays above the key level of 1 million. Apart from this, spending at building material-stores also increased 1.4% in August.

Additionally, upbeat consumer confidence data is expected to propelled consumer spending that accounts for almost two-third of the U.S. economy. This in turn will boost home furnishing sector. Consumer confidence, a key determinant of the economy’s health touched the highest level last month since Oct 2007. This was followed by the University of Michigan and Thomson Reuters’ preliminary reading of consumer sentiment that touched its highest level in September since Jul 2013.

Consumer credit significantly improved in July. The Board of Governors of the Federal Reserve System reported consumer credit increased by $26 billion in July, following a $18.8 billion increase in June. The indicator of potential future spending levels increased at a seasonally adjusted annual rate of 9.7%.

2 Prominent Picks

Upbeat retail sales, promising housing market and improvement in consumer spending levelswill boost home furnishing and furniture companies. The two stocks presented below have strong fundamentals, growth prospects and favorable Zacks Rank.

Herman Miller Inc. (MLHR) is engaged in the research, design, manufacture, and distribution of office furniture systems in United States and overseas.In the past two months, the Zacks Consensus Estimate for the current year was revised 0.5% higher.

This year’s expected earnings growth rate for this Zacks Rank #2 (Buy) stock is 12.8%. The forward price-to-earnings ratio (P/E) of the stock is 16.3x, lower than the industry average of 17.9x. The stock gained 3.7% in the last four weeks. It has a Zacks Industry Rank in the top 10%.

American Woodmark Corp. (AMWD) manufactures and distributes kitchen cabinets and vanities for the remodeling and home construction markets in the United States. Over the past two months, the stock has seen the Zacks Consensus Estimate for the current year moving 6.7% higher.

Current year expected earnings growth rate for this Zacks Rank #1 (Strong Buy) stock is 47.3%. It has an attractive P/E (F1) of 20.77x. The stock gained 24.9% in the last four weeks. It has a Zacks Industry Rank in the top 41%.

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