This Current Spending Cycle Boom Will Not Continue
Economics / US Economy Jan 13, 2016 - 02:26 PM GMTBy: Rodney_Johnson
In November of 2001 I was on an investment panel with three other people, including David Tice of Prudent Bear fame. He was riding high because, in addition to the recession of 2001, the markets had sold off after 9/11. His fund was doing well and he saw nothing but bad news for the economy and for him in the years ahead.
Relying on demographics, I told him and the audience that America’s economy would rebound as consumers spent more, but would then suffer a terrible blow between 2008 and 2010.
David countered that consumers were tapped out, so they had no resources for future spending. How could I expect them to blow more cash?
It was simple. Because they wanted to.
Consumer spending didn’t unfold exactly as we expected during the 2000s, but there’s no doubt that consumers ramped up their spending to dizzying heights in the housing boom, using zero-down loans and home equity lines of credit. The crash of 2008-2010 happened as expected, and consumers pulled in their spending horns.
But just as demographics pointed to an overall drop in spending, they also revealed that certain areas would rebound quicker than others.
A case in point is RVs. Nine million American households now have one.
There’s only one reason for this. Because they want to.
Statistical Surveys, Inc. reports that for the first 10 months of 2015, RV sales were up 11% over 2014 to 335,528 units. That tops the previous record in 2007, and is 78% higher than 2009, when the market crashed because buyers couldn’t get financing. Sales soared in 2010, up 46.2%, were up modestly in 2011 at 4.1%, and then have increased by double digits every year.
I don’t currently own an RV, but as I get a little older they are catching my attention on the road. There’s something about almost camping that’s appealing, as well as the freedom to change locations as I choose, and go home when it suits me.
This desire for flexibility and control says more about my age than my personality.
In 2001 we believed consumers would keep spending because the peak number of boomers were still raising their kids. They wouldn’t reach their top spending years until age 47-49, or 2008 to 2010.
After that point, we have different priorities. We want to pay down our debts and save for retirement. But we don’t go into a spending-bunker, refusing to part with our hard-earned dollars for any reason. We simply choose to spend differently. An RV is one of the things on the shopping list of empty nesters, which is why we’ve highlighted this industry for growth.
But the story doesn’t end there. Anyone thinking that they’ll jump on the bandwagon and start selling RVs needs to look a little deeper.
More Americans might want to hit the open road dragging a second home, but wages have been flat for years and lenders are still cautious when extending credit.
Buyers are scouring the Internet for deals and the average sale price is declining. We’re buying more units, but we’re choosing more modest accommodations.
This is the face of an economic winter season. Commerce continues, it just takes on a different tone.
As Chaucer wrote: “Time and tide wait for no man.” Our internal clocks tell us that time is passing. If we want to take advantage of our newfound freedom from kid-related responsibilities while we still have the stamina and physical capabilities, we can’t wait forever.
So, we compromise a bit, buying something a little smaller, or perhaps with fewer amenities, than we had originally planned. This favors retailers who focus on price, which typically means big dealers that can use their size to buy at lower prices from manufacturers. Small RV lots will find it tough to compete in this environment.
The flip side of this is service. RVs aren’t cars, they’re more like homes. There’s always something that needs fixing. An RV buyer might wait for months and travel hundreds of miles to make a purchase, but he probably won’t, or can’t, be as picky when repairing a broken water line.
So instead of opening an RV lot, those with an entrepreneurial bent might consider an RV service business instead. With so many new units hitting the road, chances are this will be a growth opportunity for at least the next 10 years. And if you do, just remember to give me a discount if I ever need a repair!
Rodney
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By Rodney Johnson, Senior Editor of Economy & Markets
Copyright © 2016 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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