Economists and journalists are showing substantial interest in a somewhat random consumer product: recreational vehicles (RVs).
According to the Wall Street Journal, investors often analyze demand for luxury items for indications about the future health of the economy. During an economic downturn, consumers seek to cut costs. It’s difficult for consumers to get by without food, clothing, and shelter. The first costs to go, therefore are often those that consumers can live without. In this instance, shedding the family RV, or delaying an RV purchase into the future, is an easy way for consumers to save money.
This doesn’t just make for a good story. While novel, the data suggests that consumer demand for RVs is an effective economic predictor, as multiyear drops in shipments from manufacturers to dealers have preceded the last three recessions. Indeed, according to The Atlantic, RV sales started dropping in 1999 prior to the economic recession in 2001; and dropped in 2006 and 2007, prior to the recession in 2008 and 2009.
Recent data from the RV Industry Association suggests there might be cause for economic concern. RV shipments fell 4.1 percent in 2018, and were down 20 percent in the first half of 2019 as compared to the year prior.
The northern Indiana town of Elkhart plays an important role in this story. More than 644 RV businesses are located in Indiana, employing 126,000 workers, which produce more than 60 percent of all RVs.
Today, Elkhart’s unemployment rate hasn’t come close to its high of 20 percent in 2009. However, it has increased from 2.1 percent in April 2018 to 3 percent in June 2019. This statistical increase is supported by anecdotal evidence. Thor Industries, Inc., which produces nearly half of the RV market, recently cut its production and shifted to four-day work weeks at many of its North American plants. Additionally, this past May, RV manufacturer Renegade reduced its headcount at two factories from 160 to roughly 150. These figures aren’t overwhelmingly negative, but they do suggest that the industry is hardly growing.
Explaining the reduction in consumer demand for RVs is complicated. Part of the reduction could be caused by the Trump administration’s tariffs. Tariffs increase the costs of RV inputs such as toilet-seat covers for the RV’s bathrooms, and aluminum and steel used to make the vehicles. Although the RVs are manufactured in Elkhart, manufacturers rely on a number of materials that are subject to the tariffs.
Indeed, Michael Happe, CEO of Winnebago Industries Inc. noted that tariffs are expected to add more than $10 million to the company’s costs in 2019, and that RV manufacturers will pass on many of those costs to consumers. Such a cost increase would significantly impact sales, as consumer demand for luxury goods is generally highly responsive to a change in price.
Eerily, The Atlantic cautioned in 2016 that those worried about a recession ought to visit Elkhart. “We’re going gangbusters,” stated the marketing director of Thor Motor Coach at the time. There was nothing to worry about, as 2017 was a fantastic year for RV manufacturers and dealers.
If consumer demand for RVs continues to successfully predict recessions, however, the era of gangbusters might be coming to a close.