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This Town Will Be Ground Zero For The Next Recession


As we’ve already shared with out audience – and not all that long ago – RV sales, long a bellwether of economic health in the US (where it is apparently a treasured luxury for retired suburbanites and some adventurous millennials), are flashing a warning sign of sorts. 

Domestic RV shipments to dealers, which, according to economists, can anticipate broader shifts in economic demand, plunged 22% through the end of May.

But with analysts and traders paranoid about a looming recession and nearly every professional economist predicting the economy will be in the toilet for election day, it’s probably about time to take a closer look at the market for RVs in the US, and how Trump’s tariffs are an impacting a county in Indiana that basically exists to churn out RVs. Not just the vehicles themselves, but the parts that go in them – the tires, wheels, appliances and furniture – are made in Elkhart County, Indiana, one of the few regions where the manufacturing base is still relatively intact.

As WSJ reports, Elkhart is “watched by economists and investors for early indications of waning consumer demand for luxury items, often the first sign of economic anxiety.”

So with shipments falling even more rapidly this year than last year, Michael Hicks, the Ball State University economist and swami of the RV market, is warning that the industry is taking it on the chin from Trump’s tariffs, and like the yield curve, it’s a relatively reliable indicator of a recession coming somewhere down the pike.

“The RV industry is better at calling recessions than economists are,” Hicks said.

And it’s worse for Elkhart’s residents, because when unemployment climbs in the US, it soars in Elkhart.

About 65% of recreational vehicles in the U.S. are made in the Elkhart region, as well as many of the tires, wheels, appliances and furniture that goes into them. Elkhart ships its RVs to dealers, who are careful to avoid carrying too much inventory and pull back orders when they sense cooling desire for a luxury item like an RV.

A drop in consumer demand can ricochet back to Elkhart. Unemployment in Elkhart County, which has a population of 200,000, was 3% in June, below the national rate of 3.6%, according to federal data. But it is up from a low of 2.1% in April 2018. Weekly hours worked fell by half a percent in June.

During the last recession, Elkhart’s unemployment rate hit a high of 20% in 2009.

Though the tariffs certainly aren’t helping, the industry has been forecasting a brief but painful contraction, according to one analyst who believes the RV industry has strong fundamentals, but is due for near-term retrenchment.

Baird analyst Craig Kennison said he estimates based on proprietary data that retail sales of RVs this year are down mid-to-high single digits and expects a similar decline next year.

Many manufacturers attribute the slowdown to overbuilding after an increase in demand in 2017. When demand started slowing in 2018, dealers were left with too many RVs and began ordering fewer vehicles.

Still, shipments remain historically strong. Executives say they expect inventory levels to balance out by the end of the year. The RV Industry Association is forecasting a 2.5% increase in shipments to dealers for 2020.

But once Trump is done imposing this next round of tariffs, nearly every component on an RV will be taxed. Fortunately, the industry might not need to worry about that until next year.

The prices have been sensitive to the U.S. tariffs imposed on some Chinese goods. The industry estimates that as many as 523 items could be hit by the tariffs, everything from the toilet-seat covers that go into RV bathrooms and cow hides for leather furniture to the aluminum or steel used throughout the vehicles.

Divya Brown, the president of Houston.-based TAXA Outdoors, a small RV manufacturer, said her company bought most of its parts from Elkhart. Her suppliers are raising their prices to account for the hit they are taking from imported goods such as aluminum and steel. Ms. Brown said the company saw a 22% jump in the cost of steel and a 9% jump in the cost of aluminum.

“When our suppliers are having price increases, we’re seeing price increases,” she said.

Ironically, even the perception of a slowdown in the used RV market has gotten some younger buyers to change up their plans (since they ‘don’t want to waste their money on a depreciating asset’).

Marc and Julie Bennett, who have been living on the road for the last 3½ years, said they decided to buy an old RV for $25,000 and rehab it themselves for $12,000 after estimating something comparable on lots today would have cost them close to $350,000. The Bennetts say they think the economy is headed for a slowdown and didn’t want to be stuck with a quickly depreciating asset like an RV, which they saw happen to owners during the 2008 recession.

“We couldn’t justify that amount of money, even though it’s a full-time home, on a depreciating asset,” Mr. Bennett said.

Oof. We’re not even going to touch that one.