Big-Ticket Purchases Give Economy Boost
Sales of yachts and houses up, but joblessness persists
THE last two years have been tough on boat dealers such as Tom McDowell of Surfside 3 Marina in Lindenhurst, N.Y. Since September, however, he says unit sales have risen about 20 percent.
His story is one of an increasing number of anecdotal signs that consumers are beginning to pull out their wallets for major purchases. Such sales are sometimes an early barometer of the economy.
"As people gain confidence they are willing to spend money on big ticket items," says Lyle Gramley, chief economist at the Mortgage Bankers Association and a former governor of the Federal Reserve Board.
"We've had our bad years and now we're bouncing back," says Mr. McDowell, the marina's sales manager.
Surfside is not alone. Other yacht manufacturers at the New York National Boat Show this weekend are reporting a new interest by the seagoing public.
To date, the major big ticket item moving in the economy has been housing. Since their trough in the first quarter of 1991, housing starts have rebounded 33 percent. And, Mr. Gramley expects housing to tick up 7 percent in 1993.
The improved housing outlook is helping the appliance industry. The Association of Home Appliance Manufacturers reports a strong November performance for ranges, refrigerators, home laundry machines, and dishwashers. It was the highest November sales since 1972 for gas ranges and since 1988 for dishwashers.
Jill Krutick, a vice president at Salomon Brothers Inc., says recreational-vehicle (RV) and mobile-home sales rose 22 percent in 1992 and the industry expects a 10 percent rise in 1993. Harley Davidson, which has already sold out its 1993 production of motorcycles, reports a 25 percent surge in order volume for its "Holiday Rambler," an RV. "Some of the Holiday Ramblers run $100,000," Ms. Krutick says.
The auto industry is starting to show signs of reviving as well. "It's nothing dramatic but they are coming out of the valley," says Bob Dederick, chief economist at Northern Trust Company in Chicago. On Wednesday, the Big Three automakers said sales rose 4 percent in 1992 over 1991. Mr. Dederick forecasts a 6 percent rise for durable goods, such as cars, RVs, and boats.
There appear to be a number of reasons why consumer spending is reemerging. In midsummer homeowners took advantage of falling interest rates to refinance their homes. Mortgage rates fell from 9.5 percent to 8 percent. "This frees up some money," Dederick says.
Then in the fall, Hurricane Andrew pushed people into spending to replace lost property. Florida residents are still spending some of those insurance checks.
Finally, the election seems to have given the consumer expectations that the new president will do something about the economy. "People have raised their expectations," Dederick says.
Despite the anecdotal evidence of an economic upturn, statistical signs the economy is recovering are still irregular. On Friday, the Labor Department reported that the nation's unemployment rate in December remained at 7.3 percent - the same as November's revised rate. Only 64,000 new jobs were added to the economy.
"What to do to reduce the unemployment rate remains illusive and tantalizing," says Robert Brusca, chief economist at Nikko Securities Company International Inc.
The unemployment rate is not expected to budge much in the months ahead, partially because structural changes are still racketing through the economy. On Wednesday, for example, United Airlines announced it would lay off 2,800 employees as part of a plan to cut $400 million in expenses. And last Monday Northwest Airlines said it would lay off 1,043 flight attendants and ground workers.
But these problems did not disturb the enthusiasm at the boat show. Krutick predicts a 5 percent to 8 percent upswing in boat sales in 1993. Bayliner, now the largest United States producer of power boats, reports that sales rose 33 percent at the Chicago Boat Show, held in September.
"We're moving in the right direction," says John Scoglio, a Bayliner dealer from Long Island.
McDowell expects to sell 100 boats during the 10-day show. He points to improving consumer confidence. "The consumer figures things can't get any worse, only better," he says.
Another reason why orders are starting to flow is low dealer inventories. Any increase in sales results in factory orders. And, Krutick says, "there is a lot of pent-up demand."
The sailboat market, however, will show only modest growth. Krutick expects only a 2 to 4 percent increase in sales. Since the sailboat industry has cut its expenses so sharply, even this small increase is expected to reach the bottom line.