No Time for Complacency
But let us not forget, this is a cyclical industry and while new boat sales have been growing for over 10 years now, we are still subject to the laws of economics. And boat sales historically ebb and flow with consumer confidence, growth in GDP, and other leading indicators. There are clearly some red flags ringing alarm bells for the boating industry. I hope we are not so busy trying to figure out how to build more boats, how to manage difficult supply chains, and how to hire more workers that we miss the telltale signs that the cycle may be changing.
In a recent Axios/Ipsos poll, 40% of consumers cited inflation as their biggest worry. While the same total said wages were rising faster than they have in more than a decade, 94% said their salaries weren’t keeping up as their costs of food, gasoline and housing were rising faster. And the price of new boats has risen into the stratosphere. Historically, there is strong evidence that the price of boats is highly elastic. That is, as prices rise, demand falls.
In an NBC News survey done the third week of March, 71% of U.S. adults said they felt the country is headed in the wrong direction versus 22% who think it is heading in the right direction. Sixty-two percent said they believe their family income is falling behind their costs of living as the US government reports inflation is at 8.5%. Eighty-three percent of Americans are concerned the cost of goods and services like gas will continue to increase as a result of the Russian attempt to redraw country boundaries.
In a March Tracking Poll by the Kaiser Family Foundation, 55% of Americans said Inflation was their top concern; 71% say they are “very/somewhat worried” about being able to afford gasoline or other transportation costs followed by unexpected medical bills (58%), monthly utilities (50%), food (47%), long-term care services (45%), health insurance deductible (44%), rent/ mortgage (43%), prescription drugs (43%) and health insurance premiums (36%).
And, let’s not forget, that once inflation concerns are ingrained in the consumer psyche, it becomes self-fulfilling and becomes very hard to break. That is why the Federal Reserve system is acting quickly and aggressively on interest rates with as many as ten increases in interest rates expected over the next two years, with some talk that the next two will be 50 basis points each. In my experience, economic policy is a fairly blunt tool. It will be difficult to manage inflation successfully without throwing the US and world economy into recession.
While there is a need to refill dealer inventories, is your production backlog as solid as you think it is? Will it hold in the face of inflation, rising interest rates, and a coming recession?
The latest numbers from NMMA showed boat production up 6% earlier this year but new boat sales up only 1.5%. This diversion between the increase in boat production and boat sales warns of an inventory buildup. Some of that is clearly needed, but when is enough? We need to continue to watch these numbers because production can exceed sales for only so long.
In the latest University of Michigan survey of consumer confidence, 32% of surveyed adults anticipate their finances will worsen over the next 12 months–the largest recorded share since the survey started in the mid-1940s. Consumer sentiment sank to 59.4 from 62.8 in March– down from a year-ago reading of 84.9 and the most pessimistic sentiment in 11 years. And, Morning Consult reported that consumer confidence dropped 7% among those earning more than $100,000 a year with a much larger dip among those earning less than $50,000 a year.
As we focus on solving supply chain issues and building more products, let’s not fail to pick our head up and look around at the signals telling us boat sales may have peaked in the first quarter of 2022 or may be peaking now. A recession and consumer confidence induced drop in demand by 20% or 30% from current levels doesn’t need to be a disaster for the industry if we are prepared for it.
Now is not the time for complacency. Hold on. The boating industry is about to experience some turbulence.