The U.S. leisure sector’s recent spate of bad news could be an early warning of a wider deterioration of U.S. consumer confidence, which analysts fear could spread to other parts of the economy.
“Consumers are slowing down,” said Tim Conder, an analyst at A.G. Edwards & Sons. “They’ve tapped their home-equity lines of credit. Rates have gone up. They’re paying more at the gas pump. They’re tapped out.”
According to a Reuters report, Polaris Industries Inc., a leading U.S. builder of all-terrain vehicles, motorcycles and snowmobiles, said quarterly earnings fell 29% and cut its full-year revenue outlook, blaming higher interest rates and gas prices for weaker sales.
The warning was the latest sign that highly leveraged U.S. consumers are pulling back from discretionary spending in the face of rising interest rates, higher energy prices and a slowing housing market.
On Thursday (July 13), RV builder Fleetwood Enterprises Inc. posted lower-than-expected earnings. And on Wednesday, Brunswick Corp., the world’s largest maker of recreational boats, cut its yearly outlook.
During a conference call with investors on Wednesday, Brunswick Chief Executive Dusty McCoy warned: “We believe the marine business is not alone in experiencing weakness.”
Bob Simonson, an analyst at William Blair & Co., agreed and said the pullback by consumers was moving beyond the drop in demand for pricey adult toys like boats and RVs.
“We’re on the verge of something that, if it isn’t a recession, is going to feel like one when we’re done,” Simonson said. “It’s going to spread like a cancer to other businesses. It’s the most discretionary and higher-priced items that go first. They’re the canary in the coal mine.”
How far up the income scale the spending pullback will go is unclear. So far, much of the stress seems to be among consumers on the economic margins, industry watchers say.
“Anyone who tells you that things haven’t slowed down is lying,” said Charlotte Stine, a sales representative at Abel RV Center in Bartlett, Ill., which sells everything from folding camping trailers to motorhomes that cost $250,000 or more.
But she said the drop-off was confined to customers who might have been stretching to afford cheaper products. “If people are worried about gas prices, they tend not to be looking at spending that much money on an RV.”