A question that's been on my mind: So just what was at the root of that uptick in enthusiasm we saw at the fall shows? And will it carry over into Miami and beyond?
Perhaps it was recession fatigue, the idea that if you've made it this far and your job feels secure and you'd been saving and planning for a boat before the trap door on the economy swung open, then maybe now is as good a time as any to buy. Surely, there must have been some of that at play - pent-up demand nudging the more confident, well-off consumers back into the buying game.
I also suspect the so-called "wealth effect" was at work. That's the notion that both businesses and consumers increase their spending as the perception of their wealth improves. It could come as the result of a bull market in stocks. Prerecession, the skyrocketing value of housing made millions of consumers feel flush - and spend like tipsy sailors.
With equities markets closing up strongly in 2010 for the second consecutive year, there was clearly a bull or two roaming the docks late last year - this despite the headwinds that continue to buffet economic recovery.
I spoke about the impact of the wealth effect and Keynesian "animal spirits" with two students of the broad economy and our industry, NMMA president Thom Dammrich and Bill Yeargin, president and CEO of Correct Craft. Both see the wealth effect at work, although they differ in terms of their overall level of optimism versus caution, as you'd expect.
"The rising stock market has restored most people's retirement savings to prerecession levels and is offsetting people's concerns about rising housing prices," says Dammrich. The improving equities markets are crucial to "consumer confidence and to people's willingness to spend again. ... The feeling of job security also is a big contributor to consumer confidence" and spending.
Yeargin, too, believes the wealth effect is clearly a part of the economic picture today. "Wealth effect is closely tied to consumer confidence and conspicuous consumption," he says. "However, I believe that even as consumer confidence improves, conspicuous consumption will trail it, primarily because people are going to be hesitant to leverage back up."
Whether you agree with the policy of quantitative easing or not, the wealth effect was part of the strategy behind the Federal Reserve's $600 billion QE2 plan, which was announced in early November. In an opinion piece in The Washington Post, Fed Chairman Ben S. Bernanke explained the reasons for the central bank's actions. He wrote, in part: "Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
In short, the wealth effect. Or the influence of "animal spirits." That phrase was coined by John Maynard Keynes in the 1930s and is related directly to business and consumer confidence.
"It is real," says Dammrich, "In fact, the consumer confidence index includes what is happening in the stock market in their calculations."
Confidence is an important piece of the recovery puzzle. "My experience is that the most prevalent indicator of boat sales is consumer confidence," says Yeargin. "History shows us that boat sales track very closely to consumer confidence."
Yeargin says the wealth effect could be responsible for the renewed enthusiasm felt this fall. "But," he notes, "at the end of the day, enthusiasm means nothing if it does not convert into sales. The overall market has continued to decline through November 2010."
Dammrich points out that although the consumer confidence number remains low, it's still about 10 points higher than it was at this time last year. And he's buoyed by reports suggesting luxury purchases are returning to prerecession levels. "People are spending on far more than necessities today," says Dammrich, who lists 10 reasons new-boat sales will grow this year, from light-vehicle sales figures to rising used-boat prices (there will be a future story with more on this).
Yeargin sees more flashing yellow lights, citing a combination of lost wealth, job uncertainty and the impact of federal deficits on consumer confidence as drags on growth.
"There are some macro-economic issues under way that are way bigger than our industry," he says. "With that in mind, I believe smart companies will do what we are doing - develop new product to keep consumers interested in buying and sustain a business model that is profitable in the current environment."
This article originally appeared in the February 2011 issue.