Free Falling RV Shipments Signal Recession

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Includes: CWH, LCII, PATK
by: Shock Exchange
Summary

May RV shipments fell by double digits.

Year-to-date RV shipments are down 22% Y/Y.

Free falling shipments could portend another recession.

Avoid LCII, PATK, and CWH.

Thor Airstream. Source: CNBC Thor Airstream. Source: CNBC

We are in the midst of one of the longest economic expansions in U.S. history. The economy has been spurred by trillions in bailouts and economic stimulus. The question remains, "How long can it last?"

Sans more stimulus, economic growth could fizzle out. The economy is already showing cracks. According to the Atlantic, RV shipments are a reliable predictor of recessions:

RV sales turn out to be a pretty good predictor too: When RV sales are doing well, the economy follows; when RV sales tank, the economy is soon to tank too... The RV industry has repeatedly fallen in advance of more widespread economic troubles. RV sales started dropping in 1999; the economy did not crash until 2001. Between 2006 and 2007, RV sales again dropped - this time 9.5 percent. The GDP still grew in that period, at an annual rate of 4.5 percent. But between 2007 and 2009 GDP growth slowed to 1.7 percent, and dropped 2 percent between 2008 and 2009.

RVs can cost $90,000 or more. The parts, equipment, and labor that go into making each unit can spur economic growth. The industry had run hot over the past few years. In 2018, total shipments fell 4% Y/Y. Some believed the fall-off was due to rationalization of dealer inventory. However, the fall-off has continued into 2019.

RV shipments RV shipments for the month of May were 39,724, down 14% Y/Y. Through year-to-date May 2019, shipments were nearly 179,943, down 22% Y/Y. The fall-off has likely been exacerbated by the rationalization of dealer inventory. It could also have reflected waning demand after RV shipments set record highs over the past few years. The slowdown has hurt revenue of RV-related names like Patrick (PATK) and LCI Industries (LCII). In their most recent quarters, Patrick's revenue fell by 9% Y/Y, while LCII fell by double digits.

Are Falling RV Shipments The Canary In The Coal Mine?

Falling shipments of big ticket items are bound to negatively impact the economy. The decline in purchases for parts and equipment could hurt, in addition to the reduction in labor. Unemployment in Elkhart, IN, the RV capital of the world, could be another proxy for activity in the RV sector. RV manufacturers often go to a four-day work week when business activity slows.

According to the Bureau of Labor Statistics, April 2019 unemployment in the Elkhart-Goshen, IN area was 2.6%, up from 2.1% in the year-earlier period. Unemployment for the entire country was 3.6% in April 2019, an improvement over the 3.9% in the year-earlier period.

Elkhart unemployment Rising unemployment in the Elkhart, IN area appears to correlate with the slowdown in RV shipments. The pullback in Elkhart could potentially metastasize to the rest of the country. Total U.S. unemployment for May 2019 was steady at 3.6%, yet the 75,000 jobs added during the month were much less than the 185,000 economists were expecting.

Inflation has been muted; the country's popular inflation gauge - growth in personal consumption expenditures ("PCE") - has consistently undershot the Fed's 2.0% goal. All eyes are now on the Fed and whether or not it will cut interest rates to potentially spur economic growth. Given the pullback in Elkhart, recession fears are likely warranted.

Conclusion

The next recession could be around the corner. Investors should avoid LCII, PATK, and other RV-related names like Camping World Holdings (CWH).

Disclosure: I am/we are short PATK, LCII, CWH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.