Consumer confidence is near an 18-year high and consumer spending is rising, leaving Imtra’s Eric Braitmayer, who puts both high on the list of indicators he watches, optimistic about the short-term outlook for the recreational boating industry.
“Short of some global calamity, I think the rest of 2018 will be very good for the marine industry,” Braitmayer, CEO of Massachusetts-based Imtra, said at the start of June. “Many boatbuilders still have backlogs of boats to build, service yards are busy accommodating the needs of their customers with upgrades, and consumers seem to be getting out on the water to fish, sail and cruise with their friends.
“The tough spring weather in the Northeast and mid-Atlantic has compressed the prep/launching season for many yards and dealers,” he added. “Hopefully it won’t impact getting boats in the water and into their customers’ hands when they are ready to enjoy them.”
The Conference Board says its Consumer Confidence Index rose to 128.0 in May from 125.6 in April and stands just two points shy of the February reading of 130.0, which was the highest in 18 years.
Another figure from the research group’s monthly report also marked an important milestone: Consumers’ assessment of current conditions increased to a 17-year high in May, suggesting that the level of economic growth in the second quarter is likely to have improved from the first quarter.
“Overall, confidence levels remain at historically strong levels and should continue to support solid consumer spending in the near term,” said Lynn Franco, director of economic indicators at The Conference Board, in a statement.
The U.S. Department of Commerce reported that consumer spending rose by 0.6 percent in April, after a revised increase of 0.5 percent in March. The April increase was the largest gain since November. The department reported that personal income rose 0.3 percent.
While consumer confidence was approaching milestones, the U.S. Department of Labor reported that the nation’s unemployment rate dropped to an 18-year low of 3.8 percent in May as the economy added 223,000 jobs. Job growth occurred in a range of categories, including health care, construction, professional and technical services, and manufacturing. The government reports that manufacturing employment has risen by 259,000 so far this year and that about three-fourths of the manufacturing growth has been in industries that make durable goods such as televisions, other appliances and motor vehicles. Officials said the recovery is showing no signs of slowing down.
The government reported that since April, average hourly earnings rose 0.3 percent, or 8 cents, to $26.92, but they are up only a modest 2.7 percent for the 12-month period that ended in May. In theory, employers should feel pressure to raise worker pay faster in a labor market that is as tight as this one. Larger pay increases would give families more disposable income to spend on activities such as boating.
“This is the last shoe to drop in the labor market,” Torsten Slok, chief international economist at Deutsche Bank, told The New York Times. “It’s just a matter of time before wages start going up more strongly, but there’s frustration that it hasn’t happened yet, even though unemployment is the lowest it has been in almost 18 years.”
Faster pay growth, and even stronger job growth, in the months to come could fan inflation fears and cause the Federal Reserve to quicken its pace of rate increases. Higher borrowing rates can dampen consumer spending.
“It was a stronger [jobs] report than expected, but it wasn’t so hot as to lead the Fed to believe it’s behind the curve,” Michael Gapen, chief U.S. economist at Barclays, told The New York Times. “It will keep the Fed on its gradual normalization path.”
Imtra’s Braitmayer says that from what he sees, the economy remains healthy. “2018 is proving to be a good year for Imtra,” he says. “We are seeing sales increases across most product lines. We are focusing on innovative products and working with our supplier partners to feed them market information to create great new items that make boating more fun.
“We are also investing in our people and our internal capabilities so that we can better support our boatbuilding and aftermarket customers to be a more effective partner. This translates into investments in engineering capabilities and after-sale service so that our customers and their customers have great experiences with our products.
“This is not to say that it is ever ‘easy.’ We are learning to work smarter so that we get more done as efficiently as possible. We are also investing in our content development, as we have organizational knowledge that we want to make more easily available to our trade customers and to end users through all the new digital platforms available to us.”
Although Braitmayer is optimistic, he notices “a tension in the global political landscape that makes it hard to ever feel completely confident that we aren’t about 10 minutes away from a situation that could change everything,” he says. “We saw how quickly things went south in 2007-08, and it’s hard not to keep that potential in the back of your mind. We are trying to maintain our efficiency and avoid any bit of complacency despite growing sales.”
Braitmayer says activity in the housing market can be a good predictor of the way boaters will behave, spending less when home prices drop. “When the housing market feels tenuous, that tends to cause people to be a bit more conservative about discretionary spending,” he says.
Braitmayer says his company also watches stock prices, knowing that consumers pull back if they believe their investments are lagging.
“In February, when there was volatility in the market, we were watching closely whether these were corrections or a shift away from the consistent stock-market growth we saw through 2017,” he says.
The markets for new and existing homes each had lower results in April. The Commerce Department reported that new-home sales fell 1.5 percent from the previous month, to a seasonally adjusted annual rate of 662,000, although that pace was 11.6 percent above the April 2017 estimate of 593,000.
The government revised the sales pace for March of this year downward to 672,000 from the previous figure of 694,000.
“New-home sales are not showing signs of headlong retreat, so we know that higher interest rates have not really begun to bite yet and slow sales activity in a worrisome way,” Chris Rupkey, chief economist at MUFG, told Reuters.
The National Association of Realtors said existing-home sales fell in April after rising in February and March. Sales decreased 2.5 percent, to a seasonally adjusted annual rate of 5.46 million, from 5.60 million in March.
The results left home resales 1.4 percent below the pace of a year earlier. They have fallen year over year for two months in a row.
“The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home,” Lawrence Yun, the NAR’s chief economist, said in a statement.
“Realtors say the healthy economy and job market are keeping buyers in the market for now, even as they face rising mortgage rates,” Yun adds. “However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.”
The median existing-home price was $257,900 in April, up 5.3 percent from the same month last year. Prices have increased monthly for over six years.
This article originally appeared in the July 2018 issue.