A View from Here

Bill's Sisson's weekly Trade Only blog

Boat sales, the bull market and the winter of our discontent

It came as little surprise that the harsh winter and its significant drag on the economy in the first quarter would also impact boat sales.

Just how much remains to be seen. Brunswick reported a drop in boat and engine sales for the quarter, which it attributed to adverse weather in some key boating states.

When the final first-quarter numbers are in, my hunch is you’ll see just how important location was to sales this winter. In some areas of the country poor weather kept potential buyers from getting to shows or showrooms to see boats.

With data from 28 states in for March, it was apparent that the strongest new-boat sales were registered by dealers in Florida, Texas and North Carolina, according to Statistical Surveys.

Info-Link reported that first-quarter sales on a three-month rolling basis from its bellwether states (representing about half of the U.S. boat market) were the strongest since at least 2010 and even outpaced those in 2012, when the winter was mild and spring came early.

It raises the question of what first-quarter boat sales might have looked like had winter been more benign.

What’s in store for the remainder of the year? Some of the sales that were deferred are being consummated now. Others undoubtedly were lost. But if last year is any indication, sales could snap back in the late spring, summer and early fall.

As Info-Link’s Jack Ellis told Trade Only in a recent interview, first-quarter boat sales represent about 18 percent of the year’s overall sales, so there’s still plenty of room to run.

Even more important are spring sales, which will be telling.

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In terms of the big picture, new data suggests that the U.S. economy in the first quarter might have contracted for the first time in three years and for only the second time since the end of the Great Recession. The government initially thought the economy had grown slightly. The main culprit, of course, was the weather.

Importantly, most economists expect growth to rebound significantly in the second quarter, with some predicting a gain of perhaps 3.5 percent, maybe more.

The economy added 288,000 jobs in April, which caused the unemployment rate to drop sharply, to 6.3 percent from 6.7 percent, but most of that decline was attributable to people who stopped looking for work, rather than people who had found jobs. And tepid wage growth is another sign of just how much slack there is in the labor market. Although the economy has moved out of crisis mode and continues to claw forward, the recovery remains the weakest since World War II.

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The five-year bull market in equities and the ensuing “wealth effect” has certainly been a plus for new- and used-boat sales. Coming off the 30 percent gains in the S&P 500 in 2013, many have wondered how much life is left in the bull run.

In a recent note to clients, Jonathan Golub, chief U.S. market strategist for RBC Capital Markets, said it was unlikely that the bull market was over. He said rallies do not end when they “get tired,” but rather with the onset of recessions.

“Seven of the last eight bull runs ended as the result of economic contractions, while the eighth was due to the 1987 crash,” he wrote. “The current economic rebound is the slowest of the postwar period. Growth is being held back by a modest housing recovery and weak business confidence. As a result, spare capacity exists, which prolongs the length of the cycle.”

Golub predicts double-digit returns for the next few years.

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If there is a silver lining for the industry and baby boomers in all of this, it is the idea that boat purchases, big refits, on-the-water adventures and the like that were deferred during the Great Recession can only be put off for so long.

 

I speak from experience. I turn 60 tomorrow. We all hear the clock ticking (or we should). It’s time to remember those dreams and get to the water.

Comments

One comment on “Boat sales, the bull market and the winter of our discontent

  1. Greg Proteau

    Happy Birthday Bill – You don’t look a day over …

    The National Marine Lenders Assn. just issued their take on 1Q 2014 and it mirrors much of what you reported: slow Winter, expected recoup in 2Q, some movement to new boat loans (and fewer refis), wealth effect boost supported by strong equity markets and rebound in home values in many markets.

    As far as continued double digit returns from stocks “for the next few years,” I’d caution boat sellers to get their deals done sooner than later. As you posit in the column, live the dream today and help those who want to get on the water do so this season.

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