An RV Boom Won’t Save the Economy
(Bloomberg Opinion) - It Happened Again! As in 1990, 2000 and 2007, a drop in the supply of leisure vehicles preceded a recession.
If you don't believe that RV dealers knew already in the summer of 2018 (when the decline in shipments started) that a new corona virus would emerge from China a year and a half later and bring the global economy to a standstill, there is of course no plausible connection between the RVs and the recession that started in March. (2) Like the warning signal that was allegedly triggered by last year's inverted yield curve, the RV shipments will look like they have passed the pattern as a recession indicator again, but they haven't really.
The theory had been that RVs, discretionary big-ticket items, were among the earliest warning signs of a slowdown in consumer demand. "They didn't predict Covid, but I think they predicted the quasi-manufacturing recession in 2019 pretty well," Michael Hicks, economist at Ball State University in Muncie, Indiana, emailed the ups and downs the industry closely. "I just don't think a slowdown in manufacturing in 2019 was enough to drive the overall economy into recession."
RV deliveries recovered at the end of last year and there was no recession in sight. Then came the corona virus and a breakdown.
Now the industry seems to be playing the unfamiliar role of early movers in a recovery. In April, shares of motorhome manufacturers Thor Industries Inc. and Winnebago Industries Inc., parts maker Patrick Industries Inc. and retailer Camping World Inc. outperformed the Small Cap Russell 2000 index, which includes all but industry leader Thor. They have started since the Chairman of Camping World, on May 7th, declared in a profit call that the first Friday, Saturday and Sunday in May was "the biggest weekend in our company's history, the end of history".
Since then, there have been many more individual reports of booming sales at RV dealers. (The company that tracks national vehicle registration sales, Statistical Surveys of Grand Rapids, Michigan, will be out of total May for a few weeks.) At a time when other types of travel are still afflicted with health risks and other uncertainties, Motorhomes offer an attractive alternative. You can walk out of the house and see the country without breathing a lot of indoor air.
As a national economic signal, this news is of limited value. According to a study commissioned by the industry, the annual economic impact of manufacturing, selling and using motorhomes is around 0.5% of gross domestic product - not enough for resurgence to play a major role. If RV sales are increasing mainly because people don't want to fly on planes or stay in hotels (or want to get on cruise ships, God forbid), the net economic effect could even be negative. This resurgence has so far mostly remained hypothetical. The University of Michigan's economist Richard Curtin’s recent forecast for the RV Industry Association predicts that deliveries in 2020 will be 21% lower than last year and 36% lower than 2017.
Even so, RVs are fun, and the fortune of the industry is of great importance to people in and around Elkhart, Indiana, where the leading RV manufacturers Thor and Forest River, a subsidiary of Berkshire Hathaway Inc., as well as Patrick and many others, are parts suppliers . The unemployment rate in the Elkhart-Goshen metropolitan area (also known as Elkhart County) fell from a high of 20% during the last recession to a low of 2.1% in April 2017 and 2018. This year it rose from 2.7% in March to 29.3% in April. The rate in May is likely to be somewhat lower, although a recent surge in local Covid 19 cases could slow down return to work.
The decline in RV deliveries that started in 2018 has been attributed to simple industry oversupply by many in the industry. Rising costs due to new tariffs for components made in China were also held responsible, and after writing about the slowdown last September, I received several emails advising of growing complaints about poor quality. Although I can't really speak to the latter topic, I can confirm that most RVs today look pretty chubby.
As a visit to the RV / MH Hall of Fame (1) in Elkhart shows, early motorhomes and trailers could be stylish. Aside from the legendary Airstream silver trailers made in Ohio by a subsidiary of Thor Industries and some other renegades, these days they are remarkably similar and uninspired in design and decoration, with box-shaped profiles and many side-painted noses. Covid-19 offers the RV industry the opportunity to reach new types of customers, but may need to change its product offering to keep them.
(1) Mostmedia's reporting of the National Bureau of Economic Research's Business Cycle Dating Committee finding that economic activity peaked in February interpreted it as meaning that the recession started in February. I think that really means that the expansion ended in February and the recession started in March, but whatever.
(2) The MH can either stand for mobile homes or prefabricated houses. And yes, it is open to visitors again. Please wear a mask.
This column does not necessarily reflect the opinion of the editors or Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist dealing with companies. He was editor-in-chief of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of "The Myth of the Rational Market".
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