RV Industry “Rebalancing”

“If this is a rebalancing, I don’t know what a recession is,” said Michael Hicks, an economist at Ball State University. “This (RV shipments) is one of the better indicators of a business cycle that we have.”

If you are aggressive with your investment portfolio, now might be a time to consider becoming a bit defensive.

Shipments in the RV industry experienced a 20 percent decline in the first six months of the year compared to the same period of time last year.

Tariffs and trade wars have pushed up expenses for RV manufacturers and they either pass those costs on to consumers or they have to take cost out of the product.

The RV industry has always been a leading indicator of consumer confidence. RVs are a discretionary purchase. When the sales of RVs go down, generally speaking, a faltering economy is not too far behind.

Reuters carried an article a few weeks back about the impact of Trump’s tariffs on the RV industry:

About 85% of the recreational vehicles sold in the United States are built in and around Elkhart County, making it a popular stop for politicians to tout their visions for U.S. manufacturing – including President Donald Trump, who staged a rally here last May.

And yet this uniquely American manufacturing sector has been caught in the crossfire of Trump’s trade war, according to interviews with industry insiders and economists, along with data showing a steep sales decline amid rising costs and consumer prices. The industry has taken hits from U.S. tariffs on steel and aluminum and other duties on scores of Chinese-made RV parts, from plumbing fixtures to electronic components to vinyl seat covers.

Shipments of RVs to dealers have fallen 22% percent in the first five months of this year, compared to the same period last year, after slipping 4% in 2018, according to the Recreational Vehicle Industry Association.

The RV industry’s woes illustrate how even the most “American” of manufacturers, the kind of industries Trump has vowed to protect, can be heavily exposed to tariffs in a world of globalized supply chains.

The Trump administration placed tariffs on steel and aluminum on imports from Canada of all countries.

On May 31, 2018, the United States announced that tariffs of 25% on imports of Canadian steel and 10% on imports of Canadian aluminum would take effect on June 1, 2018.

On May 31, 2018, in response to the unprecedented tariffs, Canada announced its intention to impose on July 1, 2018 surtaxes or similar trade-restrictive countermeasures on up to $16.6 billion in imports of steel, aluminum and other products from the United States, representing the value of 2017 Canadian exports affected by the U.S. measures.

On May 17, 2019, Canada and the United States reached an understanding on Section 232 tariffs on steel and aluminum to eliminate all tariffs the United States imposed under Section 232 on Canadian imports of steel and aluminum, and all tariffs Canada imposed in retaliation for the Section 232 action taken by the United States.

No one benefited from those unprecedented tariffs with Canada. A bizarre tactic that hurt both countries. The Canadian and U.S. steel and aluminum industries are deeply integrated and provide a continental supply chain for the North American economy. The tariffs placed on Canadian imports of steel and aluminum immediately hurt the RV industry.

The new tariffs and duties on imports from China are having just as much a negative impact on the RV industry as the old tariffs on steel and aluminum coming from Canada.

RV shipments have fallen sharply just before the last three U.S. recessions. Perhaps it will be different this time.