The Right Numbers

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The Consumer Confidence Index, a key economic indicator that Mark Richards, CEO of Grand Banks Yachts Ltd., watches closely, slipped in November from what had been an 18-year high. But the level was strong enough to deliver an encouraging message to Richards and the rest of the boating industry.

The Conference Board says its widely followed gauge of American consumer sentiment was at 135.7 in November, down from 137.9 in October. The decline was the first in five months. The all-time high for the index was 144.2 in May of 2000.

“Despite a small decline in November, consumer confidence remains at historically strong levels,” Lynn Franco, senior director of economic indicators at the Conference Board, said in a statement.

“Consumers’ assessment of current conditions increased slightly, with job growth the main driver of improvement. Expectations, on the other hand, weakened somewhat in November, primarily due to a less optimistic view of future business conditions and personal income prospects. Overall, consumers are still quite confident that economic growth will continue at a solid pace into early 2019. However, if expectations soften further in the coming months, the pace of growth is likely to begin moderating.”

Grand Banks’ Richards says he is upbeat about the U.S. economy.

“Judging on sales activity, we remain very positive,” he says.

Richards, whose company is the parent of Grand Banks Yachts and Palm Beach Motor Yachts, says there are dips from time to time in the Consumer Confidence Index “that are often caused by volatility in markets. If buyers are feeling good, discretionary income purchases remain robust. That’s what we’re still seeing at the retail level.”

In addition to the confidence index, Richards says, his company watches the stock market “and we also monitor currency values in the regions we do business in order to plan effectively.”

“While housing and labor are key economic indicators, for the most part, they will not indicate if we’re going to have more or less buyers,” Richards adds. “A slowdown in housing, which you’re starting to see in some areas of the U.S., can indicate a general leveling off, but again, if our top-tier buyer is feeling good and not affected by these business areas, our business is not adversely affected.”

Richards says Grand Banks has had a strong year.

“When our fiscal [year] ended on June 30 we announced the best profitability in a decade, beating past years by a country mile,” he says. “We’ve also been able to realize more contribution to the bottom line, thanks to previous capital expenditures at our facilities, on tooling and overall improved production processes.”

“We’re looking at moderate growth in 2019, driven by new product and new-market penetration,” he adds.

Richards says the company’s global distribution approach across the Grand Banks and Palm Beach brands will continue to drive its success.

“If the U.S. retracts at all in 2019, we’re positioned for continued growth in Europe, Australia, Mexico and New Zealand, while maintaining a strong U.S. business,” he says. “We’re continuing to make investments in these markets to be able to absorb any disruptions in the U.S. market that simply come through economic cycles.

“And the most important aspect for a high-quality, lower volume builder like Grand Banks and Palm Beach is product,” he adds. “Even if there are slight downturns, you can enjoy a healthy business if you have the right product. We’ve made that investment and are positioned to roll out an aggressive new product plan for the next four years and beyond. We’ve also evolved into a fully vertical company with a direct sales model and even the recent purchase of our service yard. These measures are intended to enhance the customer experience but also give us control over our own business.”

Asked about President Donald Trump’s tariffs, Richards says, “To us, nobody wins when there are market disruptions with something like tariffs. In our view, a healthy marine industry is not only good for Grand Banks, but everyone. We’ll continue to monitor and plan accordingly.”

Like the Consumer Confidence Index that Richards follows, the University of Michigan’s Consumer Sentiment Index slipped in November, dropping by a point to a still high reading of 97.5.

“Consumer sentiment has remained largely unchanged at very favorable levels during 2018, with the November reading nearly at the center of the 11-month range from 95.7 to 101.4,” Richard Curtin, chief economist of the university’s Surveys of Consumers, says in a statement.

Consumers showed their confidence by pushing up spending by 0.6 percent in October, the Commerce Department says. Consumer spending accounts for as much as 70 percent of the U.S. economy. Personal income also rose, gaining 0.5 percent for the month.

The Commerce Department also says retail sales surged in October, rising 0.8 percent from the previous month, to an estimated $511.5 billion.

“American shoppers returned in full force in October, following a lull in the prior month that was due in large part to weather disruptions,” economist Katherine Judge at CIBC Economics says in a MarketWatch report.

Inflation remains under control. The Personal Consumption Expenditures Price Index, which is the Federal Reserve’s preferred inflation gauge, was up just 2 percent for the 12-month period through October and the core PCE, which strips out food and energy, rose only 1.8 percent.

The Conference Board says its Leading Economic Index, which attempts to predict future economic activity, rose in October, but by just 0.1 percent, after gains of 0.6 percent in September and 0.5 percent in August.

“The US LEI increased slightly in October, and the pace of improvement slowed for the first time since May,” says Ataman Ozyildirim, director of economic research and global research chairman at The Conference Board. “The index still points to robust economic growth in early 2019, but the rapid pace of growth may already have peaked. While near-term economic growth should remain strong, longer-term growth is likely to moderate to about 2.5 percent by mid-to-late 2019.”

The small-business community remains confident. The National Federation of Independent Business says its Small Business Optimism Index was at a still-high level of 107.4 in October.

“For two years, small business owners have expressed record levels of optimism and are proving to be a driving force in this rapidly growing economy,” NFIB president and CEO Juanita D. Duggan says in a statement. “The October optimism index further validates that when small businesses get tax relief and are freed from regulatory shackles, they thrive and the whole economy prospers.”

On a seasonally adjusted basis, the NFIB says 30 percent of small business owners believe this is a good time to expand substantially. The companies cited the economy and strong sales.

“Thanks to a number of factors, including the federal government’s loosening grip on the private sector, the U.S. regained the top spot in the World Economic Forum’s ranking as the most competitive country during the month of October. An unburdened small business sector is truly great for employment and the general economy,” adds NFIB chief economist Bill Dunkelberg. “October’s report sets the stage for solid economic and employment growth in the fourth quarter, while inflation and interest rates remain historically tame. Small businesses are moving the economy forward.”

Recent results from the housing market sent mixed signals as mortgage rates continue to rise. New-home sales fell in October, but existing-home sales were higher.

The Commerce Department says new-home sales dropped 8.9 percent, to a seasonally adjusted annual rate of 544,000 units, from September. That was the lowest level since March 2016. There were declines in all four regions of the country and they were an indication that higher mortgage rates are hurting the market.

Indeed, home builder confidence in the market for single-family homes fell eight points, to 60, in November on the National Association of Home Builders/Wells Fargo Housing Market Index because of affordability concerns.

Any index reading above 50 indicates that more builders see conditions as good rather than poor.

“Builders report that they continue to see signs of consumer demand for new homes, but that customers are taking a pause due to concerns over rising interest rates and home prices,” says NAHB chairman Randy Noel, a custom home builder from LaPlace, La.

“For the past several years, shortages of labor and lots, along with rising regulatory costs, have led to a slow recovery in single-family construction,” adds NAHB chief economist Robert Dietz. “While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months, coupled with the cumulative run-up in pricing, has caused housing demand to stall.”

The Commerce Department says housing starts rose 1.5 percent, to a seasonally adjusted annual rate of 1.228 million in October. Housing permits were at a seasonally adjusted annual 1.26 million pace during the month, 0.6 percent lower than in September and 6 percent lower than year-earlier levels.

The National Association of Realtors says existing-home sales rose in October after six months of declines. Sales increased 1.4 percent from September, to a seasonally adjusted rate of 5.22 million.

Lawrence Yun, the NAR’s chief economist, says increased inventory was a factor in the increases.

“Gains in the Northeast, South and West – a reversal from [September’s] steep decline or plateau in all regions – helped overall sales activity rise for the first time since March 2018,” Yun says.

The NAR says the median existing-home price in October was $255,400, up 3.8 percent from the same month in 2017, and it marked the 80th straight month of year-over-year gains.

On a year-over-year basis, existing-home sales were down 5.1 percent from a seasonally adjusted 5.5 million in October of last year.

“Despite this much-welcomed month-over-month gain, sales are still down from a year ago, a large reason for which is affordability challenges from higher interest rates,” says NAR president John Smaby, a realtor from Edina, Minn.

“Rising interest rates and increasing home prices continue to suppress the rate of first-time home buyers,” Yun adds. “Home sales could further decline before stabilizing. The Federal Reserve should, therefore, re-evaluate its monetary policy of tightening credit, especially in light of softening inflationary pressures, to help ease the financial burden on potential first-time buyers and assure a slump in the market causes no lasting damage to the economy.”

This article originally appeared in the January 2019 issue.

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