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Will demand follow recent economic indicators?

As we enter our best selling months, good news comes our way. Consumers are more optimistic; home equity loans indicate people are feeling wealthier; and there are expectations that pent-up demand alone could gives boat sales a good spring.

The Conference Board announced its Consumer Confidence Index rose even higher than initially indicated, up to 82.3 from 78.3 in February. It appears consumers are emerging from the hellish winter that never seems to end with a more optimistic outlook about the economy’s direction. As we know from experience, rising consumer confidence and boat sales run on parallel tracks.

On another front, home-equity lending is reported to be on the rise as housing values continue to increase and consumers feel financially stronger. Last month, houses experienced a 12 percent increase in prices in spite of a drop in overall home sales, which was attributed more to the harsh winter weather and tight inventories than anything else. Lenders are still acting “cautiously” when extending equity loans, often limiting the combined loan-to-value ratio of the loan and the first mortgage to 80 percent. But they’re lending.

Accordingly, consumers tapping their increasing home equity to finance their new boat purchase is becoming a realistic option again. And it still has the added appeal of having the interest tax deductible when the note is backed by real estate.

In fact, combining both one-time loans and lines of credit, total home-equity loan activity rose 30.8 percent during the first nine months of 2013 compared with the same period in 2012, according to the industry publication “Inside Mortgage Finance.” Moreover, Moody’s Analytics is expecting home-equity lines of credit alone to see continued growth of up to 10 percent this year. That is good news for new boat sales.

Finally, demand that had built up during a severe winter, the rising job market and a European economic uptick (good for boat exports) could be the harbinger of healthy boat sales just ahead. Many analysts now claim the economy is poised for the best expansion since 2005. Contributing to the optimism is the revised rate of growth, up from 2.4 percent to 2.6 percent for the October-December quarter. The reason: the best consumer spending in any quarter for the last three years, the kind of spending that drives about 70 percent of our economy.

It’s not news to marine dealers that this year’s brutal winter depressed consumer spending for the first quarter. It will undoubtedly result in a decline in the growth rate, perhaps to under 2 percent, when the figures are in. The upside, however, is that many observers now think it sets up a bounce-back scenario for the April-June quarter and that could even push the economic growth rate to 3 percent or better for the rest of this year.

Since the Great Recession supposedly ended back in June 2009, the annual growth rate for the last four years has averaged a measly 2.2 percent. Achieving a 3 percent rate or better for the remainder of the year would have a marked impact on boat sales, marina occupancy and service businesses. We’ll take that.

Now, if you want to really feel good about this spring quarter, Joel Naroff, chief economist at Naroff Economics, reportedly thinks growth could hit a smashing 4.4 percent annual rate for the current April-June period. The trigger: if the pent-up consumer demand that surely exists becomes unleashed. I’ll drink to that!

Comments

One comment on “Will demand follow recent economic indicators?

  1. David

    It will be interesting to see how consumers spend any discretionary income this year. My bet is they will be cautious and looking for very good value.

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