‘Slowing, but not a disaster’

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Aluminum boats have taken a big hit as the trade war has escalated and rising raw material costs are at least in part passed to consumers.

Aluminum boats have taken a big hit as the trade war has escalated and rising raw material costs are at least in part passed to consumers.

Jitters about the world economy returned to an up-and-down, mixed-bag status today after increasingly dark indicators on Wednesday prompted the U.S. stock market to drop to its worst day of the year.

“It’s not particularly uplifting” to navigate extreme market fluctuations, SunTrust analyst Michael Swartz, who covers the marine industry, told Trade Only Today. “The narrative changes every single day. That’s bad from a corporate allocation standpoint, meaning if I want to make investment in X, I’m not going to make that investment until things are more stable. From a Wall Street perspective, I don’t want to be whipsawed by the next tweet that changes tariff policy again. Unfortunately, this has more of an effect on discretionary and cyclical stocks.”

European stocks had begun to recover somewhat today, but turned lower after China threatened a reaction to U.S. tariffs, according to Market Watch.

China’s countermeasures were in response to the latest round of tariffs on $300 billion of Chinese goods announced by the Trump administration, extending penalties to nearly everything the United States buys from China, according to the Associated Press.

The U.S. stock market tumbled on Wednesday after economies in Germany and the U.K. appeared to be contracting.

The also dropped when, for the first time since the Great Recession, bond yields (or returns) on short-term bonds eclipsed those of long-term bonds, called an “inverted yield curve,” according to The Washington Post. Essentially, it means there is higher confidence in bonds that pay in 10 years versus those that pay in two.

Though the inverted yield curve has preceded recessions for the last 50 years, and are good reason for the marine industry to proceed with caution, they are not cause for alarm, said National Marine Manufacturers Association president Thom Dammrich.

“The stock market is not the economy,” Dammrich told Trade Only. “The yield curve inverted, and that usually signals a recession that comes sometime in the following 18 to 24 months. But if the Fed lowers interest rates in September and October, it could un-invert.”

Though it’s clear the industry has experienced softness this year, some of it due to weather, it’s not a huge dip, said Dammrich.

“It’s a little softness,” said Dammrich. “If we’re down 1 percent this year, or we’re flat this year, people were pretty good and very happy with last year’s sales, and if we have the same number, why is that a reason to panic?”

Still, the industry should be cautious, he said.

“Boating is one of the first things to turn down, so we’re a leading indicator,” said Dammrich. “And let’s face it, RV sales are off a little bit, and they’re a leading indicator. You have to follow them in good times and in bad.”

Most public marine companies that SunTrust covers will hold up in a softer economy or a moderate recession, but that doesn’t necessarily translate to the overall industry, said Swartz.

Dealer comfort with inventory levels has been declining as bad weather and other forces have sidelined many sales. A new boat production forecast from ITR Economics is forecasting a production slowdown in 2020, with the low point falling midyear. That would take the industry back to production levels of spring 2019, said Dammrich.

“I think there’s been kind of a perfect storm in some areas,” he said. “In 2018, some manufacturers in some segments couldn’t keep up with demand. Dealers couldn’t get boats and lost sales. Coming into 2019, they bought more inventory so they wouldn’t have those missed opportunities. At the same time, we had terrible weather in parts of the country. So it’s a combination of higher inventory and slower sales that’s gotten people anxious — and I understand that.”

“It’s slowing, but it’s just not going to be a disaster,” added Dammrich. “Having said that, people should keep an eye on their inventory, keep an eye on expenses, and keep an eye on their cash, which are all just part of good, normal management.”

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