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Recession warning: RV sales hit the skids

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Forget the bond market, some economists are looking to the RV market for signs of an impending recession.

Shipments of recreational vehicles are down 20.3% so far this year, after falling 4.1% in 2018, according to the RV Industry Association, and it may be flashing a warning signal about the health of the U.S. economy.

“We’ve seen in the past when RV sales have slowed down, it’s a sign that the economy is slowing down,” Indiana University business professor, Kyle Anderson, said on Yahoo Finance’s “The First Trade.”

Multiyear drops in RV shipments have preceded the last three recessions.

“I think the [RV] industry is very concerned,” says Anderson.“RVs are a luxury good, and people want to feel good about the economy if they’re going to make a large purchase like this.”

Depending on style and features, RVs can cost anywhere from $20,000 to $300,000, and unlike a traditional home, they typically depreciate once you drive them off the dealer lot.

Anderson said higher steel and aluminum prices from the tariffs have pushed RV prices up about 9% over the past year, and warns that a prolonged trade war with China could send prices even higher.

That’s because most items found in the interior of recreational vehicles are imported – everything from cabinets and toilet bowls to curtains and carpets.

“They’re purchased by middle America,” Anderson said. “These aren’t the super-wealthy buying these RVs, but it’s a good indicator because it’s middle-income folks making these decisions, and they’re going to be sensitive to price.”

** FILE ** Ron and Colleen Colbach check out a $223,000 Winnebago recreational vehicle at Motor Sportsland in Salt Lake City in this June 12, 2007 file photo.  The Colbachs divide their lives between Utah and Arizona.  Winnebago Industries Inc. on Thursday, Dec. 20, 2007 said its profit rose about 26 percent in the first quarter as more customers bought more profitable high-end motor homes and the company spent less on promotions. It also boosted its dividend and its shares rose more than 4 percent in morning trading. (AP Photo/Douglas C. Pizac, file)
A $223,000 Winnebago recreational vehicle at Motor Sportsland in Salt Lake City (AP Photo/Douglas C. Pizac, file)

Industry powerhouse Winnebago (WGO) saw second-quarter revenue fall 5.9% as dealers continued to lower their inventory levels.

“It appears RV industry retail sales for calendar year 2019 will be down versus last year in the midsingle-digit range, and this will elongate the recovery period for the industry,” Winnebago President and Chief Executive Michael Happe said on the company’s earnings call.

RV Capital

Elkhart County, Ind., is the self-proclaimed RV capital of the country, with roughly 65% of all RV production taking place there. Some economists believe as Elkhart goes, so goes the economy.

“They’re cutting back on worker hours and they’re starting to do some targeted layoffs,” said Anderson, “so they’re definitely preparing for a slowdown.”

Elkhart-based Thor Industries (THO) is scaling back production of RVs and shifting its staff to a four-day work week, while another Elkhart manufacturer, LCI Industries, (LCII) consolidated some of its facilities to combat the slowdown.

“It’s hard to say whether it’s just a slowdown or a full on recession. I don’t think our RV indicators are that good, but certainly the data are there and coupled with other data, indicate that a recession is a strong possibility,” Anderson said.

Other troubling data include inverted Treasury yield curves, as well as a global slowdown in China, Germany and Hong Kong.

A recent survey from the National Association for Business Economics, finds that 38% of economists expect a slowing economy to tip into recession in 2020. 34% of those polled expect a recession in 2021, while just 2% predict a recession this year.

Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.

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