RVs and other economic canaries in the coal mine
On today's episode of the 5 Things podcast: Are we headed toward a recession? It's hard to know for sure but economists everywhere are looking for signs for it or against it. 5 Things Sunday host James Brown explores two economic indicators: the recently released GDP number with USA TODAY's Charisse Jones and the state the RV industry with Ball State economics professor Dr. Michael Hicks.
Ball State University's Center for Business and Economic Research
For more click below:
GDP report: Economy grew solidly in 4th quarter but recession fears remain. Here's what to know.
Gross Domestic Product, Fourth Quarter and Year 2022 (Advance Estimate)
RV Industry Produces 600,000 RVs in 2021, Surpassing Previous Record by 19%
RV sales surged because of COVID-19, and not everyone is thrilled with their purchase
Millennials are fueling new growth in recreational vehicle sales
A warning sign has been flashing red: How weak RV sales could mean a 2023 recession.
2022 RV Shipment Surpass 493,000 For Third Best Year On Record
Podcasts: True crime, in-depth interviews and more USA TODAY podcasts right here.
Hit play on the player above to hear the podcast and follow along with the transcript below. This transcript was automatically generated, and then edited for clarity in its current form. There may be some differences between the audio and the text.
James Brown: Hello and welcome to Five Things. It's Sunday, January 29th, 2023. Every week we take a question or idea and go deep, and this week we're talking about two economic indicators. One good, at least on the surface and the other not so much. Riddle me this, what do RV sales and our county in Indiana say about the economy? According to Ball State University economics professor, Dr. Michael Hicks a lot.
Dr. Michael Hicks: This county tends then to be the most cyclical county in the country in terms of the business cycle.
James Brown: We'll hear more from him in a bit. But first, I'm sure you've heard on this show and on so many others about the concerns about a possible recession. I think we're already there, but officials in Washington disagree. They say my uneasy feelings about the economy aren't reflected in the data. Late last week, another data point was released that proves the government right. The fourth quarter GDP number showed that the economy is growing a bit faster. But what is it and how do they put it together? I'll explore that with USA Today's Economic Opportunity Reporter, Charisse Jones. Charisse Jones, welcome to Five Things.
Charisse Jones: Thank you for having me. I'm excited to be here.
James Brown: News has just come out about the GDP. And for us, novices out there. What is it and what does it say about the economy?
Charisse Jones: Well, the GDP is Gross Domestic Product. Right? And it's basically the value of all the products and services that are produced and sold by the United States. But it's kind of a pie in the sky number in terms of giving you rosier picture of the economy than really exists. It includes things like businesses stockpiling their inventory and government spending and trade, and that's not necessarily reflective of what people are feeling on the ground.
James Brown: So pie in the sky number, they're not plucking it out of thin air. How are they calculating it?
Charisse Jones: They're adding up a lot of different numbers. So they're looking at consumer spending, they're looking at business investment, they're looking at trade, they're looking at government spending and so these are real numbers again. But it can give you an overly optimistic perspective on what's happening with the economy because some of those numbers are really volatile. For instance, businesses really had to stockpile inventory during the height of the pandemic because there were all those supply chain problems. Right? So they had all of that inventory to dig through. Once they dug through it, now they had to buy, so they began to spend a lot of money in the last quarter to get the merchandise they needed. Well, they're not necessarily going to need to do that again now in the new year, and so that number will go down. So that's the problem. Those numbers are just very volatile, and so they're not necessarily indicative of what everyday consumers are going to experience and feel.
James Brown: I'd like to get to the everyday consumer in a moment. But I want to think about this from the government reporting perspective. We saw a slight uptick there, pie in the sky, rosy version of the economy says that we're growing again?
Charisse Jones: Yes, we've been growing and we continued to grow in the last quarter. And we actually grew at a faster rate than a lot of economists expected. It was about 2.9% expansion and they were predicting 2.6%. So basically we're saying that there are a lot of economic metrics that are continuing to accelerate. Right? As opposed to decelerate. But what that number doesn't tell you is all right, consumer spending was up 2.1%. Right? But it was up less than the 2.3% in the previous quarter. So we're still growing, but at a slower pace, it's weakening. And a lot of economists feel that it's going to continue to weaken in this year because the Fed keeps raising interest rates. Which makes it harder to live. It makes it more expensive to borrow, it makes it more expensive to get a car loan or to get a mortgage. So at a certain point, consumers are just not going to have the bandwidth to keep spending at the same pace and that can lead to an economic downturn.
James Brown: Are there metrics that are more connected to what we're feeling on the ground?
Charisse Jones: Yeah, I do feel that obviously the jobs numbers are very real and very important. I think consumer spending is a much clearer indication clearly of how people are feeling. I think the spending or the savings numbers are really important. During the pandemic we got up to about 2.6 trillion in savings, this really, really high number because people weren't commuting, they weren't traveling, they weren't going to restaurants. There were a lot of pandemic relief programs in place they gave people a little extra cash. You have that child tax credit that gave you a little more money. Well, that's really dwindled. That's down to now about 1.5 trillion. And especially for people who are on the lower income, the lower end of the income spectrum, they really have gone through their savings at this point. And so I think those numbers and how they compare to where the numbers were the previous month or quarter, give you a more realistic picture of what people are experiencing in the country.
James Brown: Charisse, based on your reporting and your experience seeing the ups and downs of the economy, where do we appear to be going?
Charisse Jones: Well, it looks like we're probably going to head into a recession in the first half of the year. That's what many economists believe. They don't think it's going to be as bad as '08 when we had the great recession and the country was just in a meltdown. It's not going to be like the pandemic induced recession where the world shut down. It'll be moderate in comparison. But we're still talking about a loss of jobs in the hundreds of thousands, some banks have said it could be up to 2 million. And for every one of those people that loses that job, it is devastating. Right? And so calling it mild versus not mild can be a bit misleading. I think that the reason we're probably going to head in that direction, frankly, is because the Fed continues to raise interest rates. They are trying to curb inflation they say, and so as a result, they keep making it more expensive to borrow money. And that's going to affect businesses and that's going to give them the justification to cut jobs.
Charisse Jones: It makes it harder to buy a home, or get a car loan, or a lot more people are using their credit cards to live to buy groceries because things are expensive. But when you put that money, that purchase on that credit card, you're paying a lot more for it because of those interest rates rising. So I think that we might be in for a little bit of pain or a little bit more pain in the next several months. But again, people are expecting that it's not going to be deep and it won't be as long lasting as some of the downturns we've experienced in the last decade.
James Brown: The RV industry has had a great run of late. As millennials began to make big purchases over the last five to 15 years, RVs were an affordable option for a generation making less than their parents did. According to the Recreational Vehicle Industry Association, the amount of shipments of RVs to dealers doubled between 2007 and 2017, reaching an all-time high. It was also one of the industries that thrived during the height of the COVID 19 pandemic until the middle of last year when the numbers began to fall. As my colleague Paul Davidson recently detailed in USA Today, the year started strong, but shipments tumbled through the summer and fall and don't look good this winter. In our conversation Ball State University Economics Professor Dr. Michael Hicks, tells me that the decline in ARC V sales could be an economic canary in the coal mine. Michael Hicks, welcome to Five Things.
Dr. Michael Hicks: Hey, it's good to be with you. Thank you.
James Brown: Are you more of a teacher or a researcher?
Dr. Michael Hicks: I mostly do research. I teach MBA classes here at Ball State University and run a small economic and public policy research center.
James Brown: Tell me more about your focus.
Dr. Michael Hicks: We really try to focus on what causes households and businesses to locate where they do in the city, the county, and the state that they locate. And part of that is studying taxes. It's studying quality of life, it's studying the business cycle and its effect on individual communities.
James Brown: And among the other topics, you Zoom in on our RVs. Why RVs and what do they tell us about our economy?
Dr. Michael Hicks: Every industry responds at different rates and different magnitudes to a downturn. Some things like healthcare doesn't respond very quickly. We still have appendicitis and we get colds, and so our demand for going to the doctor or going to the hospital remains pretty constant during a downturn. In other areas where we're more responsive to a business cycle, you see's immediate effects. And one of my favorite industries for this is the recreational vehicle industry. It's concentrated here in northern Indiana. About 80% of the RVs made in the Western Hemisphere are right here in one county in Indiana. There's extensive supply chains across the northern part of the state. As the economy started to come out of Covid, people bought a lot of RVs. Interest rates were low, so it was very easy to borrow money to upgrade that tow behind to a fifth wheel or trade in that fifth wheel for a 40 footer, a self-propelled RV.
Dr. Michael Hicks: And so those motor homes are really expensive. They can run $200,000, $250,000. And so having a interest rate at 3% is a lot different than having one at 6%. So we saw sales increase by about 50% during 2021 from the 2019 numbers. 2020 was weird and not a good comparison. And then as the economy has begun to slow, as the Federal Reserve has raised interest rates through 2022, we saw their monthly sales drop from over 60,000 a month down to we're now about 25,000 a month as of Christmastime period. And so if you're looking for a sign of what higher interest rates, and higher gas prices, and a little bit more dismal outlook for the following year or two caused. You need no farther than the RV industry, which is so very sensitive to these sorts of things.
James Brown: How big is the RV industry in your region?
Dr. Michael Hicks: So in Elkhart County, it's a beautiful, heavily farmed area, a fairly large county, 225,000 people, and half the jobs are tied up with manufacturing. Most of that is either assembling recreational vehicles or providing part of the supply chain, the wiring harnesses, the chassis components and those sorts of things are provided there. And this industry has been there for a long time. It really concentrated after the 2007 to 2009 great recession. The more factories moved there from around the country and they expanded their operations. And so this county tends then to be the most cyclical county in the country in terms of the business cycle.
Dr. Michael Hicks: So in the 1981, '82 downturns unemployment rate hit almost hit 20%. Back in 2008, 2009, it was almost 20%. The unemployment rate over the past couple months have been, or the last 18 to 24 months, has been down under 2% in the county. Now it's up 3.94 so it's a higher than the nation as a whole. But it's the type of county that presidential candidates like to visit depending on whether or not they're an incumbent or the challenger. If things are going well, it's a great place for the incumbent to go because the unemployment rate will be low, it'll be good times because RVs are selling very quickly. If you're a challenger and it's bad times, you want to go there to highlight the economic challenges the country faces.
James Brown: So unemployment is going up there?
Dr. Michael Hicks: Well, it's ahead of the national curve. Right? So much of the nation is feeling tighter labor markets, but most of that's coming in the reduction of help wanted ads. So if you're in most places, the demand for labor far exceeds the supply. So if you just look at the number of people who have a job and are unemployed, that's a nice national number. In any state or city, you'll have a number of labor supply. The demand, which is the number of people working plus help wanted ads, is going to be considerably higher.
Dr. Michael Hicks: What we generally are seeing now isn't businesses reducing their pool of workers. What we're seeing them do is maybe they're not going to advertise for every job that they were advertising for. Maybe they won't be doing the planned expansion that they were thinking about last year. And so we're seeing most of the reduced demand for labor coming in the form of fewer help wanted ads. So that's a leading indicator of slacker labor markets in the months to come. In Elkhart, you're seeing the unemployment raise and the rise now, you're seeing some evidence of layoffs in the RV industry that is preceding the rest of the country. So they're feeling the economic effects now in a way that's not being felt in Atlanta, or Jacksonville, or Seattle. Other places that have more stable employment.
James Brown: Any famous last words?
Dr. Michael Hicks: No, I think we covered just about everything. Just very happy to be with you.
James Brown: If you'd like to show, write us a review on Apple Podcast or wherever you're listening. And do me a favor, share it with a friend. What do you think of the show? Email me @jabrownusa.com or leave me a message at (585) 484 0339. We might have you on the show. Thanks to Charisse Jones and Dr. Michael Hicks for joining me and to Alexis Gustin and Shannon Ray Green for their production assistance. For all of us at USA Today, thanks for listening. I'm James Brown, and as always, be well.
This article originally appeared on USA TODAY: RVs and other economic canaries in the coal mine
