For the Home Furnishings & Accessories Supply Industry
Second Half 2026 | Navigating Interconnected Risk
When Yesterday’s Assumptions Become Today’s Risk
Furniture orders are improving just as the labor market weakens, tariffs remain unsettled and global shipping stays fragile. What should suppliers trust—and what should they reassess now?
Published by the Furniture Manufacturers Credit Association
Prepared by David R. Johnston, Vice President & General Manager
Estimated reading time: 19–22 minutes Information current as of August 7, 2026, 11:55 a.m. EDT
What Leaders Need to Know
Furniture demand just produced a genuinely better signal—but not an all-clear. Smith Leonard’s latest survey shows May new orders up 8% year over year and 13% from April, pushing year-to-date orders 2% above 2025. At the same time, June furniture-store sales were flat year over year and July consumer confidence softened.
The labor market changed the Federal Reserve debate again. U.S. payrolls fell by 23,000 in July, and May and June were revised down by a combined 103,000 jobs. The unemployment rate eased to 4.1%, but labor-force participation slipped to 61.4%.
The Canadian tariff risk is still scheduled, but it is no longer a static assumption. Additional 50% duties on specified Canadian goods—including furniture classifications—remain scheduled for August 19 while U.S. and Canadian officials negotiate possible relief.
Hormuz remains a physical supply-chain problem, not merely a geopolitical headline. Only 33 vessels transited the strait Monday through Thursday this week, down from 50 in the same period a week earlier and far below normal pre-closure traffic.
The management challenge is contradictory evidence. The correct response is neither optimism nor panic. It is shorter review cycles, scenario planning and faster integration of sales, credit, finance, sourcing and operations signals.
Opening Perspective
When the Signals Disagree
This week produced a near-perfect example of why executives can no longer manage risk from a single headline.
Smith Leonard’s newest Furniture Insights® report delivered the strongest order signal the residential furniture industry has seen in months: May new orders rose 8% from a year earlier and 13% from April, lifting year-to-date orders 2% above 2025. It was the second consecutive year-over-year increase—the first such two-month run since June and July 2025.
Then, on Friday morning, the national employment report moved in the opposite direction. U.S. nonfarm payrolls fell by 23,000 in July, while the previously reported gains for May and June were revised down by a combined 103,000 jobs. Retail trade lost 19,000 jobs. The unemployment rate edged down to 4.1%, but labor-force participation slipped to 61.4%.
Both sets of numbers can be true at the same time.
Furniture manufacturers and distributors can see improving orders while consumers become less confident. Retail sales can remain stable while hiring weakens. A Federal Reserve that had three policymakers voting for a rate increase can, nine days later, receive a labor report that makes the next decision materially more complicated. A tariff scheduled to take effect can remain subject to negotiation. Diplomatic talks can continue while actual vessel traffic through a critical shipping route deteriorates.
That is the operating environment in August 2026: not one clear direction, but several credible signals moving at different speeds.
The mistake is to choose the number that confirms what leadership already wants to believe. A better month in orders should not be dismissed. A weak jobs report should not be treated as proof of recession. A tariff deadline should not be treated as inevitable if negotiations are active—or ignored simply because talks are underway.
The job of leadership is to understand what each signal changes, what it does not change, and how several signals interact before the company increases its exposure.
More than six decades ago, FMCA founder Henry Wallace Taylor recognized a simpler version of the same problem: no individual supplier could see the complete credit picture. Manufacturers made better decisions when they combined their own experience with factual payment information shared by others. Today the information set is much larger, but the principle is unchanged.
Sales may see demand improving. Credit may see a customer paying several days more slowly. Finance may see margin pressure. Sourcing may see tariff exposure. Operations may see freight instability. Each observation can be accurate. The decision improves when those observations are brought together before the next order, price commitment or credit increase is approved.
The Signal Board — August 7, 2026
FURNITURE ORDERS
+8%
May vs. May 2025
+13% vs. April; YTD +2%
U.S. PAYROLLS
−23,000
July 2026
May + June revised down 103,000
CANADA
+50%
Specified goods scheduled Aug. 19
Trade negotiations remain active
HORMUZ
33
vessels Mon.–Thu. this week
50 same period last week; 130–140 weekly pre-closure
The point is not that one signal is right and another is wrong. The point is that leadership has to make decisions while all four are true at once.
The Customer May Be the Same. The Assumptions Are Not.
Imagine a Monday morning leadership meeting.
Sales has a significant order waiting for approval. The customer has bought from the company for years and has generally paid as agreed. The latest industry order data look better, which strengthens the case for optimism.
At the same time, sourcing cannot confirm the final landed cost because tariff treatment may depend on classification, country of origin, entry date and whether another trade action already applies. Finance is concerned that the anticipated margin has narrowed. Credit has noticed that the customer is paying slightly more slowly. Operations is monitoring energy and shipping risk.
No single fact necessarily justifies rejecting the order. Taken together, however, those facts may change the decision.
Most commercial decisions depend on assumptions. A selling price assumes a particular landed cost. A purchasing decision assumes a level of demand. A credit limit assumes that a customer will generate enough cash to meet its obligations. An inventory commitment assumes that merchandise can be sold within a reasonable period. A financing plan assumes a certain cost of capital.
Those assumptions do not have to be perfect. Business has always required decisions to be made without complete information. The danger arises when an important assumption changes but the decision based on it does not.
A customer can be the same legal entity and still become a different credit risk. Its stores, ownership and management may not have changed, yet its capacity to absorb costs, finance inventory or generate cash may have changed substantially.
Historical payment experience remains essential. But it describes how the customer performed under earlier conditions. It does not, by itself, tell leadership how that customer will perform when several operating assumptions change at once.
Historical information does not become less valuable. Current context becomes more important.
Tariff Exposure Has Become a Management Issue
Tariffs are often discussed as though each country has one clearly identifiable rate. The current structure is considerably more complicated.
On July 23, the Office of the United States Trade Representative finalized Section 301 actions covering 60 economies. The additional duties—generally 10% or 12.5%, subject to exemptions and special treatment—became applicable July 24. Furniture importers may also face existing Section 301 duties, Section 232 duties or other measures depending on the exact product and origin.
Canada presents a separate issue. A July 20 proclamation scheduled an additional 50% duty on specified Canadian goods beginning August 19. The covered list includes furniture and seating classifications, and the action applies to covered products even if they otherwise qualify under USMCA. Products already subject to Section 232 duties are excluded from this separate Canadian action.
The important update is that August 19 is now both a tariff deadline and a negotiation deadline. Canadian officials met with U.S. Trade Representative Jamieson Greer on August 6 and described the talks as constructive and detailed. Reuters reported on August 7 that the two sides had exchanged written bargaining positions and were discussing possible Canadian concessions in return for some tariff relief. No agreement had been reached as of this update.
That distinction matters. A company should prepare for the published tariff while retaining scenarios for modification, delay or partial relief. Treating the announced rate as either certain or irrelevant would be the same analytical mistake in opposite directions.
The result is a tariff map in which exposure can depend on the precise Harmonized Tariff Schedule classification, country of origin, entry date, product exemptions, existing trade measures and stacking rules.
This is no longer merely a customs-department issue. It affects pricing, gross margin, sourcing, purchasing commitments, customer negotiations, sales programs and credit exposure.
A tariff absorbed by the supplier reduces margin and cash flow. A tariff passed to the retailer can increase inventory investment or compress margin. A tariff passed to the consumer can weaken demand or shift purchases toward lower-priced alternatives. The cost may enter through one company, but the financial pressure can travel throughout the commercial chain.
The better leadership question is not only, ‘What is the tariff?’ It is: ‘What happens to the supplier, the customer and the consumer when this cost enters the transaction—and what changes if the announced tariff is modified?’
Plan for the published tariff. Prepare for a negotiated change. Do not confuse scenario planning with prediction.
The Fed’s Hold Was Not a Promise of Relief
On July 29, the Federal Reserve maintained the federal funds target range at 3.50% to 3.75%. The unchanged rate received most of the attention. The vote was more revealing.
The decision passed 9–3, with Beth Hammack, Neel Kashkari and Lorie Logan preferring a quarter-point increase. The Committee said economic activity continued to expand at a solid pace while inflation remained elevated, partly reflecting supply shocks including energy.
At that moment, the message to businesses was clear: do not build a plan around imminent rate relief.
That remains good advice. But the July employment report means the Fed is no longer looking at the same balance of risks it was looking at nine days earlier.
The Jobs Report Changed the Rate Debate—Without Resolving It
The Bureau of Labor Statistics reported on August 7 that nonfarm payroll employment fell by 23,000 in July. More important than one negative month were the revisions: May job growth was cut from 129,000 to 63,000, and June was cut from 57,000 to 20,000. Together, May and June payrolls were 103,000 lower than previously reported.
The unemployment rate edged down from 4.2% to 4.1%, but the labor-force participation rate fell to 61.4%. Since January, participation has declined 0.7 percentage point and the employment-population ratio has fallen 0.5 point. The lower unemployment rate therefore did not arrive with broader labor-force participation.
The industry detail is also relevant. Retail trade lost 19,000 jobs in July, including a 21,000 decline at warehouse clubs, supercenters and other general merchandise retailers. Financial activities lost another 14,000 jobs and are down 121,000 from their May 2025 peak. Manufacturing employment changed little.
The weakness did not appear out of nowhere. Earlier in the week, the June Job Openings and Labor Turnover Survey showed 7.4 million job openings, little changed overall but with openings down 74,000 in wholesale trade and 55,000 in nondurable-goods manufacturing.
This does not establish that the economy is in recession. BLS itself described both payroll employment and the unemployment rate as having changed little. But the report clearly reduces the margin for assuming that the labor market will continue to absorb high borrowing costs without consequence.
The Fed now faces a more visible two-sided problem: inflation remains above target, while hiring has lost momentum. That makes the next inflation readings—especially the July CPI scheduled for August 12—more important, not less important.
For suppliers, the lesson is practical. Rate relief may ultimately arrive sooner than the July 29 vote implied, but it may arrive because demand and employment are weakening. Cheaper money is not automatically good news if the reason for cheaper money is a softer customer environment.
A rate cut caused by a weakening economy is not the same business signal as a rate cut caused by falling inflation in a healthy economy.
How Geopolitical Risk Reaches Accounts Receivable
The U.S.–Iran conflict may seem far removed from a supplier’s customer-credit decision. Commercially, it is not.
The Strait of Hormuz remains one of the clearest examples of the difference between a diplomatic headline and an operating reality. Reuters reported on August 7 that only 33 vessels transited the strait from Monday through Thursday this week, down from 50 during the same period the previous week. Before the closure, roughly 130 to 140 ships typically transited the strait in a full week.
Only six crude-oil tankers had exited the strait during the week through Thursday, even as Iran and Oman discussed a possible reopening arrangement. Shipowners remained wary of entering the waterway because of security and insurance concerns.
That suggests a useful management rule: watch the physical flow, not only the diplomatic statement.
Executives do not need to predict the military outcome. They should understand the transmission path. Shipping disruption can raise energy, freight and marine-insurance costs; those costs can affect inflation and Federal Reserve policy; higher prices and borrowing costs can pressure consumers and housing; and weaker demand or margin compression can eventually reach retailer liquidity and supplier receivables.
Not every link will occur in every company, and the timing will differ. But geopolitical risk becomes commercial credit risk when its effects weaken a customer’s ability to generate cash.
Watch the physical flow, not only the diplomatic statement.
Economic Resilience Is Not the Same as Industry Strength
The advance estimate released July 30 showed real U.S. GDP increasing at a 1.5% annual rate during the second quarter, down from 2.1% in the first quarter. That headline suggests slowing growth, but the underlying figures are less straightforward.
Real final sales to private domestic purchasers—the combination of consumer spending and private fixed investment—rose at a 3.9% annual rate, up from 1.7% in the first quarter. Consumer spending accelerated, and spending on furnishings and durable household equipment, led by furniture, contributed to goods spending.
At the same time, inflation remained elevated. The gross domestic purchases price index increased at a 5.7% annual rate during the quarter, while the PCE price index increased 5.1%. June consumer spending increased 0.3%, but services accounted for most of the dollar increase and the personal saving rate fell to 2.7%.
Thursday’s productivity report added another crosscurrent: nonfarm business productivity increased 1.4% in the second quarter, but real hourly compensation fell at a 3.1% annualized rate. Business efficiency can improve while household purchasing power remains under pressure.
The national economy is therefore not presenting a simple recessionary picture. But national resilience does not guarantee strength in furniture, and a positive furniture-order month does not guarantee that every retailer is financially stronger.
Industry Lens
A Real Improvement—But Not Yet a Clear Turn
Industry data and perspective provided by Smith Leonard PLLC’s July 2026 Furniture Insights®.
The newest Smith Leonard survey materially improves the industry picture compared with the report available when this Outlook was first drafted.
May new orders were up 8% from May 2025 and 13% from April. Year-to-date orders moved to 2% above the comparable 2025 period. Approximately two-thirds of survey participants reported year-over-year order increases. Shipments were 1% above May 2025 and flat with April; year-to-date shipments were even with 2025. Backlogs increased 5% both month over month and year over year.
Those figures deserve to be recognized as a genuine improvement. Smith Leonard noted that participants recorded year-over-year order gains for a second consecutive month, the first such trend since June–July 2025. Its commentary also noted that recent public-company financial and other reporting in the industry appeared generally positive.
But the same report contains the reason not to turn improvement into an all-clear. Receivables were 5% below the prior year, inventories remained 3% above May 2025 and factory and warehouse employment was 5% below the prior year. July consumer confidence fell to 90.8, the Present Situation Index declined for a third consecutive month and expectations remained in negative territory. Smith Leonard described consumer confidence, housing and other economic indicators as mixed while tariffs remained top of mind.
Furniture also remained among consumers’ most desired planned durable-goods purchases over the next six months. That is encouraging because it suggests underlying desire has not disappeared. The problem remains converting desire into sustained transactions in an environment shaped by affordability, financing costs and confidence.
The most useful interpretation is therefore neither ‘the industry is weak’ nor ‘the recovery is here.’ It is: the industry has produced an encouraging demand signal that now needs confirmation.
The next several monthly reports matter because two consecutive gains can become the beginning of momentum—or another brief improvement in an uneven cycle. Leadership teams should treat the better order data as information that may justify opportunity, while continuing to test customer-specific liquidity, payment behavior and margin capacity.
The better order data are real. So are the weaker labor and confidence signals. The decision advantage comes from holding both facts at the same time.
Housing Still Matters—but the Translation to Furniture Is Uneven
Housing remains one of the most important demand channels for home furnishings, and the latest data remain mixed.
Existing-home sales fell 2.4% in June from May but were 2.8% above June 2025. Single-family existing-home sales were down 2.4% month over month but up 3.3% year over year. The average 30-year fixed mortgage rate in June was 6.49%, slightly higher than May but below a year earlier.
New single-family home sales rose 1.6% from May but remained 5.6% below June 2025. The median new-home price was 2.7% lower than a year earlier, and the market held 9.3 months of supply.
Total housing starts jumped 19% in June, but single-family starts slipped 0.2%. The headline increase was driven heavily by multifamily construction. Single-family completions, however, rose 6.6% from May, which is more directly relevant to near-term household moves.
The relationship between housing and furniture remains important, but it is not automatic. A household can complete a move and still defer furniture because of a larger mortgage payment, depleted savings, repair expenses or uncertainty about employment.
Bankruptcy Is the Final Visible Stage—not the First Warning
Furniture Today tracked 12 bankruptcy filings, restructuring proceedings or insolvency actions across the home furnishings sector during the first half of 2026. The cases included furniture and mattress retailers, manufacturers, suppliers and an international bedding company.
The number is concerning. The more useful lesson is not the count.
A bankruptcy filing is normally the point at which financial distress becomes publicly unmistakable. Deterioration often begins much earlier.
Potential warning signals include payments arriving incrementally later; recurring requests for extended terms; unexplained deductions or disputes; unusually large orders; promises that depend on a future financing event; ownership or management changes; store consolidation; reduced availability from other vendors; or a widening gap between reported revenue growth and actual cash generation.
Any one signal may have a reasonable explanation. A pattern deserves attention.
This is where the updated industry and employment data become relevant. Improving furniture orders can increase the temptation to lean into sales opportunities just as weaker labor conditions, financing costs or tariff exposure are reducing a particular customer’s room for error. Growth can be good for a customer and still consume cash. A larger order can be a sign of strength—or a sign that a customer is relying more heavily on supplier credit.
The objective is not to predict every bankruptcy. It is to recognize deterioration early enough to preserve options.
What Leadership Teams Should Reassess Now
1. Treat improved demand as a reason to investigate—not a reason to stop investigating
The latest Smith Leonard order data are encouraging. Use them to identify opportunities, but test whether the specific customer is converting demand into cash rather than inventory and receivables.
2. Recalculate landed-cost exposure
Separate confirmed tariff exposure from scenarios. Review classification, origin, entry dates, exemptions, stacking rules and contractual responsibility with qualified customs and trade professionals.
3. Distinguish revenue growth from cash generation
A customer can grow sales while weakening liquidity. Determine whether growth is producing cash or requiring additional borrowing, inventory and working capital.
4. Shorten review cycles when assumptions change
Annual reviews can be too slow when tariff deadlines, shipping conditions, rate expectations and payment behavior change in weeks. Review frequency should respond to material changes in the assumptions supporting the exposure.
5. Establish cross-functional escalation triggers
Sales may see improving demand. Credit may see slower payments. Finance may see margin compression. Sourcing may see tariff exposure. Operations may see shipping instability. Create a process that forces those signals into the same conversation before a major exposure is approved.
6. Build more than one scenario
Leadership teams do not need to predict the exact tariff, oil price, jobs report or Federal Reserve decision. They need to understand what happens if the optimistic case is right, if conditions remain mixed, and if one major assumption moves against the company.
For Your Next Management Meeting
Questions for Your Leadership Team
If the latest improvement in furniture orders continues, which customers are best positioned to convert that demand into cash—and which may need more working capital to support growth?
Which assumption behind our current pricing, sourcing or credit decisions would create the greatest exposure if it proved wrong?
What does today’s weaker labor report change in our view of consumer demand, retailer liquidity and the likely path of interest rates?
Do sales, credit, finance, sourcing and operations have a consistent trigger for reconvening when one of these assumptions changes?
What evidence would make us increase exposure—and what evidence would make us reduce it—before the next scheduled account review?
Executive Legal Perspective
Reducing a Customer’s Accounts Receivable in the Zone of Insolvency
By David H. Conaway Partner, Shumaker, Loop & Kendrick, LLP
Editor’s Introduction
Recognizing financial deterioration is important, but recognition alone is not enough. In this contributed article, David H. Conaway explains two Article 2 provisions that may help a seller reduce exposure under appropriate circumstances. His article is presented substantially as submitted, preserving his legal analysis and voice.
Your invoices are past due. Your customer has gone silent. You are hearing industry rumors about financial distress. You may hear that the customer has retained known restructuring counsel. You know what’s coming, a Chapter 11 filing, but the customer will not confirm that. In fact, the customer denies the “rumors”, fearful of triggering defaults and losing credit terms provided by suppliers.
Your accounts receivable balance is $500,000, which will become a pre-petition general unsecured claim in Chapter 11. You know all too well that such claims rarely are paid in a Chapter 11 proceeding, so the $500,000 accounts receivable is looking like a write-off. You’re in the twilight zone – the zone of insolvency, which often lasts weeks if not months depending on the negotiations among the customer and its lenders and bondholders on DIP financing and on a bond restructuring (often a debt-equity swap). It will likely be a “prepackaged” or “pre-arranged” Chapter 11 filing.
The good news is you don’t have to sit back and watch the painful slide into bankruptcy. You can be proactive and reduce your accounts receivable balance, even absent a material payment default.
Vendors have two powerful tools in Article 2 of the Uniform Commercial Code governing the sale of goods:
Section 2-609 Anticipatory Breach
When reasonable grounds for insecurity arise with respect to the performance of either party, the other may in writing demand adequate assurances of due performance and if commercially reasonable, suspend any performance.
Section 2-702(1) Cash Before Delivery Upon Buyer’s Insolvency
Where the seller discovers the buyer to be insolvent, the seller may refuse delivery except for cash.
Section 2-609 and 2-702(1) work well together. The seller’s performance obligations, which it may suspend under 2-609, are shipping goods and providing any credit terms agreed on between the parties. If reasonable grounds for insecurity exist, the seller may suspend its obligation to ship or to provide credit terms, or both. Section 2-702(1) likewise allows the seller to sell goods on a cash basis.
Frequently Asked Questions
1. What are reasonable grounds for insecurity?
Although not defined by Article 2, the bar is low and courts have found that reasonable grounds for insecurity exist when a party fails to make required payments pursuant to a contract, such as when a buyer fails to pay outstanding invoices under a supply contract or when the accumulated debt of a buyer making purchases on credit substantially exceeds the buyer’s credit limit.
2. When does a buyer become insolvent?
Insolvency is normally defined on a balance sheet basis: liabilities exceed assets. Also, a company may be insolvent if generally it is unable to pay debts as they come due.
3. What if the customer is not in material default?
Neither Section 2-609 nor 2-702(1) hinge on the buyer’s default. In fact, Article 2 provides a seller clear remedies when a buyer fails to pay. Section 2-609 addresses the situation where there is no current default, but the seller can reasonably anticipate a default.
Likewise, Section 2-702(1) hinges on the buyer’s insolvency, not the buyer’s default.
4. Can the supplier refuse to ship goods altogether?
Arguably, yes, but if the seller delivers goods on a cash before delivery basis, the seller fulfills its business mission with no risk of non-payment.
Section 2-609 allows a seller to suspend all performance “if commercially reasonable”. Moreover, the Uniform Commercial Code imposes a standard good faith, which weighs in favor of continuing to ship, particularly if the buyer’s business operations would be damaged without a consistent flow of goods.
5. How do Sections 2-609 and 2-702(1) benefit the seller?
If the accounts receivable balance is $500,000 and the credit terms are net 30 days, the $500,000 accounts receivable balance should be zero in 30 days, or $250,000 in 2 weeks. Depending on how long the zone of insolvency lasts, the seller will likely reduce, if not eliminate, its accounts receivable balance before the customer files. These are 100% dollars compared to pennies on the dollar if the accounts receivable balance exists at the time of Chapter 11 filing.
6. What about preference risk?
Accelerated pay-downs of accounts receivable balances during the zone of insolvency normally imply an increased preference risk. This is because accelerated pay-downs are not considered in the “ordinary course of business”.
However, if the existing accounts receivable balance is paid in accordance with terms during the zone of insolvency, those payments should be protected by the ordinary course of business defense. Future shipments will be on a cash before delivery basis, so the payments by the customer are not “on account of an antecedent (existing) debt” since a debt does not arise until after delivery has occurred.
About David H. Conaway
David H. Conaway Partner, Shumaker, Loop & Kendrick, LLP
David represents clients in corporate bankruptcy, insolvency and restructuring; commercial contracts and business transactions; commercial disputes; and cross-border matters. His experience includes suppliers to and customers of distressed companies, financial institutions, unsecured creditors’ committees, boards of directors and purchasers of distressed assets. His manufacturing work includes furniture, forest products, textiles, appliances and related industries.
This contributed article is provided for general informational purposes and does not constitute legal advice. The application of the Uniform Commercial Code and bankruptcy law depends on the applicable jurisdiction, contractual terms and specific circumstances. Companies should consult qualified legal counsel before acting.
Looking Ahead
What FMCA Is Watching
August 12: inflation
The July CPI will be the next major test of whether weaker labor data can meaningfully change the Federal Reserve debate. A cooler employment picture does not automatically produce rate relief if inflation reaccelerates.
August 19: Canada
The additional 50% duties on specified Canadian goods remain scheduled to begin August 19. Active U.S.–Canada negotiations make this a live scenario, not a settled outcome. Companies with exposure should be ready for implementation and modification.
Hormuz: physical traffic
Diplomatic announcements matter, but vessel movements, insurance conditions and actual cargo flows are the better operating indicators. FMCA will watch whether traffic begins to normalize or remains severely constrained.
Furniture orders: confirmation
Smith Leonard’s May results are encouraging. The next question is whether the two-month year-over-year improvement becomes sustained momentum in orders, shipments and backlogs—and whether customer payment behavior improves with it.
August 28: payroll benchmark signal
BLS is scheduled to publish its preliminary annual benchmark revision estimate for establishment payroll data. After the large May and June revisions in today’s report, the benchmark update deserves more attention than usual.
Closing Perspective
Better Visibility Does Not Eliminate Risk
The newest data do not weaken the central argument of this Outlook. They strengthen it.
A week ago, the risk story could have been told mostly through tariffs, borrowing costs, geopolitical disruption and uneven furniture demand. Today, the furniture-order data are more encouraging while the labor-market data are more concerning. Canada’s tariff deadline remains in place while negotiations intensify. Hormuz talks continue while physical vessel traffic has fallen again.
That is exactly why leadership teams should resist managing from a single indicator.
The objective is not to become more pessimistic. It is to become more precise.
A customer may still be creditworthy. An order may still be profitable. Improving demand may justify taking additional opportunity. But those conclusions should be based on the conditions that exist now—and on a clear understanding of which assumptions could change before the receivable is collected.
The greatest risk may not be that leadership misses a headline. It may be that leadership sees one encouraging headline, stops asking questions and leaves yesterday’s assumptions in place while the rest of the environment keeps moving.
Sources and Recognition
Smith Leonard PLLC:Furniture Insights® — July 2026. Industry survey results and perspective are credited to Smith Leonard and are not FMCA-generated data.
David H. Conaway: “Reducing a Customer’s Accounts Receivable in the Zone of Insolvency,” presented under his full byline and substantially as submitted.
FMCA Credit & Risk Outlook: When Yesterday’s Assumptions Become Today’s Risk
FMCA Credit & Risk Outlook
For the Home Furnishings & Accessories Supply Industry
Second Half 2026 | Navigating Interconnected Risk
When Yesterday’s Assumptions Become Today’s Risk
Furniture orders are improving just as the labor market weakens, tariffs remain unsettled and global shipping stays fragile. What should suppliers trust—and what should they reassess now?
Estimated reading time: 19–22 minutes
Information current as of August 7, 2026, 11:55 a.m. EDT
What Leaders Need to Know
Opening Perspective
When the Signals Disagree
This week produced a near-perfect example of why executives can no longer manage risk from a single headline.
Smith Leonard’s newest Furniture Insights® report delivered the strongest order signal the residential furniture industry has seen in months: May new orders rose 8% from a year earlier and 13% from April, lifting year-to-date orders 2% above 2025. It was the second consecutive year-over-year increase—the first such two-month run since June and July 2025.
Then, on Friday morning, the national employment report moved in the opposite direction. U.S. nonfarm payrolls fell by 23,000 in July, while the previously reported gains for May and June were revised down by a combined 103,000 jobs. Retail trade lost 19,000 jobs. The unemployment rate edged down to 4.1%, but labor-force participation slipped to 61.4%.
Both sets of numbers can be true at the same time.
Furniture manufacturers and distributors can see improving orders while consumers become less confident. Retail sales can remain stable while hiring weakens. A Federal Reserve that had three policymakers voting for a rate increase can, nine days later, receive a labor report that makes the next decision materially more complicated. A tariff scheduled to take effect can remain subject to negotiation. Diplomatic talks can continue while actual vessel traffic through a critical shipping route deteriorates.
That is the operating environment in August 2026: not one clear direction, but several credible signals moving at different speeds.
The mistake is to choose the number that confirms what leadership already wants to believe. A better month in orders should not be dismissed. A weak jobs report should not be treated as proof of recession. A tariff deadline should not be treated as inevitable if negotiations are active—or ignored simply because talks are underway.
The job of leadership is to understand what each signal changes, what it does not change, and how several signals interact before the company increases its exposure.
More than six decades ago, FMCA founder Henry Wallace Taylor recognized a simpler version of the same problem: no individual supplier could see the complete credit picture. Manufacturers made better decisions when they combined their own experience with factual payment information shared by others. Today the information set is much larger, but the principle is unchanged.
Sales may see demand improving. Credit may see a customer paying several days more slowly. Finance may see margin pressure. Sourcing may see tariff exposure. Operations may see freight instability. Each observation can be accurate. The decision improves when those observations are brought together before the next order, price commitment or credit increase is approved.
The Signal Board — August 7, 2026
The Customer May Be the Same. The Assumptions Are Not.
Imagine a Monday morning leadership meeting.
Sales has a significant order waiting for approval. The customer has bought from the company for years and has generally paid as agreed. The latest industry order data look better, which strengthens the case for optimism.
At the same time, sourcing cannot confirm the final landed cost because tariff treatment may depend on classification, country of origin, entry date and whether another trade action already applies. Finance is concerned that the anticipated margin has narrowed. Credit has noticed that the customer is paying slightly more slowly. Operations is monitoring energy and shipping risk.
No single fact necessarily justifies rejecting the order. Taken together, however, those facts may change the decision.
Most commercial decisions depend on assumptions. A selling price assumes a particular landed cost. A purchasing decision assumes a level of demand. A credit limit assumes that a customer will generate enough cash to meet its obligations. An inventory commitment assumes that merchandise can be sold within a reasonable period. A financing plan assumes a certain cost of capital.
Those assumptions do not have to be perfect. Business has always required decisions to be made without complete information. The danger arises when an important assumption changes but the decision based on it does not.
A customer can be the same legal entity and still become a different credit risk. Its stores, ownership and management may not have changed, yet its capacity to absorb costs, finance inventory or generate cash may have changed substantially.
Historical payment experience remains essential. But it describes how the customer performed under earlier conditions. It does not, by itself, tell leadership how that customer will perform when several operating assumptions change at once.
Tariff Exposure Has Become a Management Issue
Tariffs are often discussed as though each country has one clearly identifiable rate. The current structure is considerably more complicated.
On July 23, the Office of the United States Trade Representative finalized Section 301 actions covering 60 economies. The additional duties—generally 10% or 12.5%, subject to exemptions and special treatment—became applicable July 24. Furniture importers may also face existing Section 301 duties, Section 232 duties or other measures depending on the exact product and origin.
Canada presents a separate issue. A July 20 proclamation scheduled an additional 50% duty on specified Canadian goods beginning August 19. The covered list includes furniture and seating classifications, and the action applies to covered products even if they otherwise qualify under USMCA. Products already subject to Section 232 duties are excluded from this separate Canadian action.
The important update is that August 19 is now both a tariff deadline and a negotiation deadline. Canadian officials met with U.S. Trade Representative Jamieson Greer on August 6 and described the talks as constructive and detailed. Reuters reported on August 7 that the two sides had exchanged written bargaining positions and were discussing possible Canadian concessions in return for some tariff relief. No agreement had been reached as of this update.
That distinction matters. A company should prepare for the published tariff while retaining scenarios for modification, delay or partial relief. Treating the announced rate as either certain or irrelevant would be the same analytical mistake in opposite directions.
The result is a tariff map in which exposure can depend on the precise Harmonized Tariff Schedule classification, country of origin, entry date, product exemptions, existing trade measures and stacking rules.
This is no longer merely a customs-department issue. It affects pricing, gross margin, sourcing, purchasing commitments, customer negotiations, sales programs and credit exposure.
A tariff absorbed by the supplier reduces margin and cash flow. A tariff passed to the retailer can increase inventory investment or compress margin. A tariff passed to the consumer can weaken demand or shift purchases toward lower-priced alternatives. The cost may enter through one company, but the financial pressure can travel throughout the commercial chain.
The better leadership question is not only, ‘What is the tariff?’ It is: ‘What happens to the supplier, the customer and the consumer when this cost enters the transaction—and what changes if the announced tariff is modified?’
The Fed’s Hold Was Not a Promise of Relief
On July 29, the Federal Reserve maintained the federal funds target range at 3.50% to 3.75%. The unchanged rate received most of the attention. The vote was more revealing.
The decision passed 9–3, with Beth Hammack, Neel Kashkari and Lorie Logan preferring a quarter-point increase. The Committee said economic activity continued to expand at a solid pace while inflation remained elevated, partly reflecting supply shocks including energy.
At that moment, the message to businesses was clear: do not build a plan around imminent rate relief.
That remains good advice. But the July employment report means the Fed is no longer looking at the same balance of risks it was looking at nine days earlier.
The Jobs Report Changed the Rate Debate—Without Resolving It
The Bureau of Labor Statistics reported on August 7 that nonfarm payroll employment fell by 23,000 in July. More important than one negative month were the revisions: May job growth was cut from 129,000 to 63,000, and June was cut from 57,000 to 20,000. Together, May and June payrolls were 103,000 lower than previously reported.
The unemployment rate edged down from 4.2% to 4.1%, but the labor-force participation rate fell to 61.4%. Since January, participation has declined 0.7 percentage point and the employment-population ratio has fallen 0.5 point. The lower unemployment rate therefore did not arrive with broader labor-force participation.
The industry detail is also relevant. Retail trade lost 19,000 jobs in July, including a 21,000 decline at warehouse clubs, supercenters and other general merchandise retailers. Financial activities lost another 14,000 jobs and are down 121,000 from their May 2025 peak. Manufacturing employment changed little.
The weakness did not appear out of nowhere. Earlier in the week, the June Job Openings and Labor Turnover Survey showed 7.4 million job openings, little changed overall but with openings down 74,000 in wholesale trade and 55,000 in nondurable-goods manufacturing.
This does not establish that the economy is in recession. BLS itself described both payroll employment and the unemployment rate as having changed little. But the report clearly reduces the margin for assuming that the labor market will continue to absorb high borrowing costs without consequence.
The Fed now faces a more visible two-sided problem: inflation remains above target, while hiring has lost momentum. That makes the next inflation readings—especially the July CPI scheduled for August 12—more important, not less important.
For suppliers, the lesson is practical. Rate relief may ultimately arrive sooner than the July 29 vote implied, but it may arrive because demand and employment are weakening. Cheaper money is not automatically good news if the reason for cheaper money is a softer customer environment.
How Geopolitical Risk Reaches Accounts Receivable
The U.S.–Iran conflict may seem far removed from a supplier’s customer-credit decision. Commercially, it is not.
The Strait of Hormuz remains one of the clearest examples of the difference between a diplomatic headline and an operating reality. Reuters reported on August 7 that only 33 vessels transited the strait from Monday through Thursday this week, down from 50 during the same period the previous week. Before the closure, roughly 130 to 140 ships typically transited the strait in a full week.
Only six crude-oil tankers had exited the strait during the week through Thursday, even as Iran and Oman discussed a possible reopening arrangement. Shipowners remained wary of entering the waterway because of security and insurance concerns.
That suggests a useful management rule: watch the physical flow, not only the diplomatic statement.
Executives do not need to predict the military outcome. They should understand the transmission path. Shipping disruption can raise energy, freight and marine-insurance costs; those costs can affect inflation and Federal Reserve policy; higher prices and borrowing costs can pressure consumers and housing; and weaker demand or margin compression can eventually reach retailer liquidity and supplier receivables.
Not every link will occur in every company, and the timing will differ. But geopolitical risk becomes commercial credit risk when its effects weaken a customer’s ability to generate cash.
Economic Resilience Is Not the Same as Industry Strength
The advance estimate released July 30 showed real U.S. GDP increasing at a 1.5% annual rate during the second quarter, down from 2.1% in the first quarter. That headline suggests slowing growth, but the underlying figures are less straightforward.
Real final sales to private domestic purchasers—the combination of consumer spending and private fixed investment—rose at a 3.9% annual rate, up from 1.7% in the first quarter. Consumer spending accelerated, and spending on furnishings and durable household equipment, led by furniture, contributed to goods spending.
At the same time, inflation remained elevated. The gross domestic purchases price index increased at a 5.7% annual rate during the quarter, while the PCE price index increased 5.1%. June consumer spending increased 0.3%, but services accounted for most of the dollar increase and the personal saving rate fell to 2.7%.
Thursday’s productivity report added another crosscurrent: nonfarm business productivity increased 1.4% in the second quarter, but real hourly compensation fell at a 3.1% annualized rate. Business efficiency can improve while household purchasing power remains under pressure.
The national economy is therefore not presenting a simple recessionary picture. But national resilience does not guarantee strength in furniture, and a positive furniture-order month does not guarantee that every retailer is financially stronger.
Industry Lens
A Real Improvement—But Not Yet a Clear Turn
Industry data and perspective provided by Smith Leonard PLLC’s July 2026 Furniture Insights®.
The newest Smith Leonard survey materially improves the industry picture compared with the report available when this Outlook was first drafted.
May new orders were up 8% from May 2025 and 13% from April. Year-to-date orders moved to 2% above the comparable 2025 period. Approximately two-thirds of survey participants reported year-over-year order increases. Shipments were 1% above May 2025 and flat with April; year-to-date shipments were even with 2025. Backlogs increased 5% both month over month and year over year.
Those figures deserve to be recognized as a genuine improvement. Smith Leonard noted that participants recorded year-over-year order gains for a second consecutive month, the first such trend since June–July 2025. Its commentary also noted that recent public-company financial and other reporting in the industry appeared generally positive.
But the same report contains the reason not to turn improvement into an all-clear. Receivables were 5% below the prior year, inventories remained 3% above May 2025 and factory and warehouse employment was 5% below the prior year. July consumer confidence fell to 90.8, the Present Situation Index declined for a third consecutive month and expectations remained in negative territory. Smith Leonard described consumer confidence, housing and other economic indicators as mixed while tariffs remained top of mind.
Furniture also remained among consumers’ most desired planned durable-goods purchases over the next six months. That is encouraging because it suggests underlying desire has not disappeared. The problem remains converting desire into sustained transactions in an environment shaped by affordability, financing costs and confidence.
The most useful interpretation is therefore neither ‘the industry is weak’ nor ‘the recovery is here.’ It is: the industry has produced an encouraging demand signal that now needs confirmation.
The next several monthly reports matter because two consecutive gains can become the beginning of momentum—or another brief improvement in an uneven cycle. Leadership teams should treat the better order data as information that may justify opportunity, while continuing to test customer-specific liquidity, payment behavior and margin capacity.
Housing Still Matters—but the Translation to Furniture Is Uneven
Housing remains one of the most important demand channels for home furnishings, and the latest data remain mixed.
Existing-home sales fell 2.4% in June from May but were 2.8% above June 2025. Single-family existing-home sales were down 2.4% month over month but up 3.3% year over year. The average 30-year fixed mortgage rate in June was 6.49%, slightly higher than May but below a year earlier.
New single-family home sales rose 1.6% from May but remained 5.6% below June 2025. The median new-home price was 2.7% lower than a year earlier, and the market held 9.3 months of supply.
Total housing starts jumped 19% in June, but single-family starts slipped 0.2%. The headline increase was driven heavily by multifamily construction. Single-family completions, however, rose 6.6% from May, which is more directly relevant to near-term household moves.
The relationship between housing and furniture remains important, but it is not automatic. A household can complete a move and still defer furniture because of a larger mortgage payment, depleted savings, repair expenses or uncertainty about employment.
Bankruptcy Is the Final Visible Stage—not the First Warning
Furniture Today tracked 12 bankruptcy filings, restructuring proceedings or insolvency actions across the home furnishings sector during the first half of 2026. The cases included furniture and mattress retailers, manufacturers, suppliers and an international bedding company.
The number is concerning. The more useful lesson is not the count.
A bankruptcy filing is normally the point at which financial distress becomes publicly unmistakable. Deterioration often begins much earlier.
Potential warning signals include payments arriving incrementally later; recurring requests for extended terms; unexplained deductions or disputes; unusually large orders; promises that depend on a future financing event; ownership or management changes; store consolidation; reduced availability from other vendors; or a widening gap between reported revenue growth and actual cash generation.
Any one signal may have a reasonable explanation. A pattern deserves attention.
This is where the updated industry and employment data become relevant. Improving furniture orders can increase the temptation to lean into sales opportunities just as weaker labor conditions, financing costs or tariff exposure are reducing a particular customer’s room for error. Growth can be good for a customer and still consume cash. A larger order can be a sign of strength—or a sign that a customer is relying more heavily on supplier credit.
The objective is not to predict every bankruptcy. It is to recognize deterioration early enough to preserve options.
What Leadership Teams Should Reassess Now
1. Treat improved demand as a reason to investigate—not a reason to stop investigating
The latest Smith Leonard order data are encouraging. Use them to identify opportunities, but test whether the specific customer is converting demand into cash rather than inventory and receivables.
2. Recalculate landed-cost exposure
Separate confirmed tariff exposure from scenarios. Review classification, origin, entry dates, exemptions, stacking rules and contractual responsibility with qualified customs and trade professionals.
3. Distinguish revenue growth from cash generation
A customer can grow sales while weakening liquidity. Determine whether growth is producing cash or requiring additional borrowing, inventory and working capital.
4. Shorten review cycles when assumptions change
Annual reviews can be too slow when tariff deadlines, shipping conditions, rate expectations and payment behavior change in weeks. Review frequency should respond to material changes in the assumptions supporting the exposure.
5. Establish cross-functional escalation triggers
Sales may see improving demand. Credit may see slower payments. Finance may see margin compression. Sourcing may see tariff exposure. Operations may see shipping instability. Create a process that forces those signals into the same conversation before a major exposure is approved.
6. Build more than one scenario
Leadership teams do not need to predict the exact tariff, oil price, jobs report or Federal Reserve decision. They need to understand what happens if the optimistic case is right, if conditions remain mixed, and if one major assumption moves against the company.
For Your Next Management Meeting
Questions for Your Leadership Team
Executive Legal Perspective
Reducing a Customer’s Accounts Receivable in the Zone of Insolvency
By David H. Conaway
Partner, Shumaker, Loop & Kendrick, LLP
Recognizing financial deterioration is important, but recognition alone is not enough. In this contributed article, David H. Conaway explains two Article 2 provisions that may help a seller reduce exposure under appropriate circumstances. His article is presented substantially as submitted, preserving his legal analysis and voice.
Your invoices are past due. Your customer has gone silent. You are hearing industry rumors about financial distress. You may hear that the customer has retained known restructuring counsel. You know what’s coming, a Chapter 11 filing, but the customer will not confirm that. In fact, the customer denies the “rumors”, fearful of triggering defaults and losing credit terms provided by suppliers.
Your accounts receivable balance is $500,000, which will become a pre-petition general unsecured claim in Chapter 11. You know all too well that such claims rarely are paid in a Chapter 11 proceeding, so the $500,000 accounts receivable is looking like a write-off. You’re in the twilight zone – the zone of insolvency, which often lasts weeks if not months depending on the negotiations among the customer and its lenders and bondholders on DIP financing and on a bond restructuring (often a debt-equity swap). It will likely be a “prepackaged” or “pre-arranged” Chapter 11 filing.
The good news is you don’t have to sit back and watch the painful slide into bankruptcy. You can be proactive and reduce your accounts receivable balance, even absent a material payment default.
Vendors have two powerful tools in Article 2 of the Uniform Commercial Code governing the sale of goods:
Section 2-609 Anticipatory Breach
When reasonable grounds for insecurity arise with respect to the performance of either party, the other may in writing demand adequate assurances of due performance and if commercially reasonable, suspend any performance.
Section 2-702(1) Cash Before Delivery Upon Buyer’s Insolvency
Where the seller discovers the buyer to be insolvent, the seller may refuse delivery except for cash.
Section 2-609 and 2-702(1) work well together. The seller’s performance obligations, which it may suspend under 2-609, are shipping goods and providing any credit terms agreed on between the parties. If reasonable grounds for insecurity exist, the seller may suspend its obligation to ship or to provide credit terms, or both. Section 2-702(1) likewise allows the seller to sell goods on a cash basis.
Frequently Asked Questions
1. What are reasonable grounds for insecurity?
Although not defined by Article 2, the bar is low and courts have found that reasonable grounds for insecurity exist when a party fails to make required payments pursuant to a contract, such as when a buyer fails to pay outstanding invoices under a supply contract or when the accumulated debt of a buyer making purchases on credit substantially exceeds the buyer’s credit limit.
2. When does a buyer become insolvent?
Insolvency is normally defined on a balance sheet basis: liabilities exceed assets. Also, a company may be insolvent if generally it is unable to pay debts as they come due.
3. What if the customer is not in material default?
Neither Section 2-609 nor 2-702(1) hinge on the buyer’s default. In fact, Article 2 provides a seller clear remedies when a buyer fails to pay. Section 2-609 addresses the situation where there is no current default, but the seller can reasonably anticipate a default.
Likewise, Section 2-702(1) hinges on the buyer’s insolvency, not the buyer’s default.
4. Can the supplier refuse to ship goods altogether?
Arguably, yes, but if the seller delivers goods on a cash before delivery basis, the seller fulfills its business mission with no risk of non-payment.
Section 2-609 allows a seller to suspend all performance “if commercially reasonable”. Moreover, the Uniform Commercial Code imposes a standard good faith, which weighs in favor of continuing to ship, particularly if the buyer’s business operations would be damaged without a consistent flow of goods.
5. How do Sections 2-609 and 2-702(1) benefit the seller?
If the accounts receivable balance is $500,000 and the credit terms are net 30 days, the $500,000 accounts receivable balance should be zero in 30 days, or $250,000 in 2 weeks. Depending on how long the zone of insolvency lasts, the seller will likely reduce, if not eliminate, its accounts receivable balance before the customer files. These are 100% dollars compared to pennies on the dollar if the accounts receivable balance exists at the time of Chapter 11 filing.
6. What about preference risk?
Accelerated pay-downs of accounts receivable balances during the zone of insolvency normally imply an increased preference risk. This is because accelerated pay-downs are not considered in the “ordinary course of business”.
However, if the existing accounts receivable balance is paid in accordance with terms during the zone of insolvency, those payments should be protected by the ordinary course of business defense. Future shipments will be on a cash before delivery basis, so the payments by the customer are not “on account of an antecedent (existing) debt” since a debt does not arise until after delivery has occurred.
About David H. Conaway
David H. Conaway
Partner, Shumaker, Loop & Kendrick, LLP
David represents clients in corporate bankruptcy, insolvency and restructuring; commercial contracts and business transactions; commercial disputes; and cross-border matters. His experience includes suppliers to and customers of distressed companies, financial institutions, unsecured creditors’ committees, boards of directors and purchasers of distressed assets. His manufacturing work includes furniture, forest products, textiles, appliances and related industries.
Direct: 704.945.2149
Email: dconaway@shumaker.com
Office: 101 South Tryon Street, Suite 2200, Charlotte, North Carolina 28280
Professional biography: David H. Conaway | Shumaker
This contributed article is provided for general informational purposes and does not constitute legal advice. The application of the Uniform Commercial Code and bankruptcy law depends on the applicable jurisdiction, contractual terms and specific circumstances. Companies should consult qualified legal counsel before acting.
Looking Ahead
What FMCA Is Watching
August 12: inflation
The July CPI will be the next major test of whether weaker labor data can meaningfully change the Federal Reserve debate. A cooler employment picture does not automatically produce rate relief if inflation reaccelerates.
August 19: Canada
The additional 50% duties on specified Canadian goods remain scheduled to begin August 19. Active U.S.–Canada negotiations make this a live scenario, not a settled outcome. Companies with exposure should be ready for implementation and modification.
Hormuz: physical traffic
Diplomatic announcements matter, but vessel movements, insurance conditions and actual cargo flows are the better operating indicators. FMCA will watch whether traffic begins to normalize or remains severely constrained.
Furniture orders: confirmation
Smith Leonard’s May results are encouraging. The next question is whether the two-month year-over-year improvement becomes sustained momentum in orders, shipments and backlogs—and whether customer payment behavior improves with it.
August 28: payroll benchmark signal
BLS is scheduled to publish its preliminary annual benchmark revision estimate for establishment payroll data. After the large May and June revisions in today’s report, the benchmark update deserves more attention than usual.
Closing Perspective
Better Visibility Does Not Eliminate Risk
The newest data do not weaken the central argument of this Outlook. They strengthen it.
A week ago, the risk story could have been told mostly through tariffs, borrowing costs, geopolitical disruption and uneven furniture demand. Today, the furniture-order data are more encouraging while the labor-market data are more concerning. Canada’s tariff deadline remains in place while negotiations intensify. Hormuz talks continue while physical vessel traffic has fallen again.
That is exactly why leadership teams should resist managing from a single indicator.
The objective is not to become more pessimistic. It is to become more precise.
A customer may still be creditworthy. An order may still be profitable. Improving demand may justify taking additional opportunity. But those conclusions should be based on the conditions that exist now—and on a clear understanding of which assumptions could change before the receivable is collected.
Sources and Recognition
Smith Leonard PLLC: Furniture Insights® — July 2026. Industry survey results and perspective are credited to Smith Leonard and are not FMCA-generated data.
David H. Conaway: “Reducing a Customer’s Accounts Receivable in the Zone of Insolvency,” presented under his full byline and substantially as submitted.
Published by the Furniture Manufacturers Credit Association
Prepared by David R. Johnston, Vice President & General Manager
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