(Bloomberg Opinion) -- It happened again! Just as in 1990, 2000 and 2007, a decline in recreational-vehicle shipments preceded a recession.
Of course, unless you believe that RV dealers knew back in summer 2018 (when the shipment decline began) that a new coronavirus would emerge from China a year and a half later and bring the global economy to a standstill, there’s no plausible connection between the RV swoon and the recession that started in March. As with the warning signal supposedly flashed by last year’s inverted yield curve, RV shipments will look like they again passed muster as a recession indicator, but they didn’t really.
The theory had been that, as big-ticket discretionary items, RVs were among the earliest warning signs of softening consumer demand. “They didn’t predict Covid, but I think they did a pretty good job forecasting the manufacturing quasi-recession we had in 2019,” emails Michael Hicks, an economics professor at Ball State University in Muncie, Indiana, who has been watching the industry’s ups and downs closely. “I just don’t think a manufacturing slowdown in 2019 was sufficient to drag the aggregate economy into recession.”
So by late last year, RV shipments were rebounding and no recession was in sight. Then came the coronavirus, and a collapse.
Now, the industry seems to be playing the unfamiliar role of early mover in a recovery. In April, the stocks of RV makers Thor Industries Inc. and Winnebago Industries Inc., parts-maker Patrick Industries Inc., and retailer Camping World Inc. began outperforming the small-cap Russell 2000 Index, to which all but industry leader Thor belong. Since Camping World’s chief executive officer declared in a May 7 earnings call that the first Friday, Saturday and Sunday in May had been “the biggest weekend in our company’s history, period end of story,” they’ve taken off.
There have been lots more anecdotal reports of booming sales at RV dealers since then. (The company that tracks national sales via vehicle registrations, Statistical Surveys of Grand Rapids, Michigan, won’t have May totals for a few more weeks.) At a time when other modes of travel are still fraught with disease risk and other uncertainties, RVs present an attractive alternative. You can get out of the house and see the country without breathing a lot of shared indoor air.
As a national economic signal this news is of limited value. The annual economic impact of the manufacturing, sales and use of RVs is about 0.5% of gross domestic product, according to an industry-commissioned study — not enough for its resurgence to matter much. If RV sales are up mainly because people don’t want to fly in airplanes or stay in hotels (or get on cruise ships, God forbid), the net economic effect could even be negative. Also, this resurgence remains as yet mostly hypothetical. The latest forecast for the RV Industry Association by University of Michigan economist Richard Curtin anticipates that 2020 shipments will be 21% lower than last year’s and 36% lower than in 2017.
Still, RVs are fun, plus the industry’s fortunes do matter a lot to people in and around Elkhart, Indiana, home of leading RV manufacturers Thor and Forest River, a subsidiary of Berkshire Hathaway Inc., as well as Patrick and a lot of other parts suppliers. The unemployment rate in the Elkhart-Goshen metropolitan area (aka Elkhart County) had dropped from a high of 20% during the last recession to a low of 2.1% in April of 2017 and 2018. This year it leapt from 2.7% in March to 29.3% in April. May’s rate will presumably turn out to have been a bunch lower, although a recent rise in local Covid-19 cases may slow the return to work.
The decline in RV shipments that began in 2018 was attributed by many in the industry to a simple production overshoot. Rising costs due to new tariffs on Chinese-made components also got some of the blame, and after I wrote about the slowdown last September I received several emails pointing to growing complaints about shoddy quality. Although I can’t really speak to the latter issue, I can attest that most of today’s RVs are pretty dumpy-looking.
As a visit to the RV/MH Hall of Fame in Elkhart makes clear, early motor homes and trailers could be quite stylish. Nowadays, apart from the iconic silver Airstream trailers made in Ohio by a Thor Industries subsidiary, and a few other renegades, they tend to be remarkably similar and uninspired in design and decoration, featuring boxy profiles and a lot of swoops painted on the sides. Covid-19 is giving the RV industry an opportunity to reach out to new kinds of customers, but it may have to change its product offerings to keep them.
Mostmedia reporting on the National Bureau of Economic Research Business Cycle Dating Committee's determination that economic activity peaked in February interpreted this to mean that the recession started in February. I think it really means that the expansion ended in February and the recession started in March, but whatever.
The MH can stand for either motor home or manufactured home. And yes, it's open to visitors again. Please wear a mask.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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