World's RV capital says recession signal isn't flashing

RV production in Elkhart, Indiana, the RV capital of the world, is down 20.3 percent from a year ago, according to RV Industry Asscociation data, and is fanning fears that a U.S. recession may be brewing.

Elkhart is responsible for about 70 percent of RV production in the United States, and some economists use the shipments as a gauge for how the U.S. consumer is holding up.

“The last five or six years it’s boomed to two years ago the most RVs ever built,” said Gary Davis, a “retired” industry veteran of almost 50 years, who spoke to FOX Business from his office in Elkhart. “We couldn’t get enough inventory out. Dealers couldn’t get enough inventory then.”

Jim Schmucker, acting sales manager at Tiara RV in Elkhart, says that is what is in fact to blame for the recent slump.

“A year and a half ... two years ago most of the dealers were having trouble getting product and they expanded their inventory by 20 or 30 percent,” said Schmucker. “I think most of them have pulled that back and I think the factories overproduced a little bit so that created a bubble, which is what we’re working our way through right now.”

He's not alone in his thinking.

“The sales are down just a little bit, but we have had record years three years in a row," said Scot Moody, a sales manager at Total Value RV in Elkhart. "It’s not been a significant drop off, it's just not what it's been for the previous three or four years."

However, it isn’t the production of RVs itself that is a recession indicator, but what the RV signifies, said Gerhard Glomm, department chair and professor of economics at Indiana University.

“When people make these kind of purchases they are forward looking because they think I’m going to have to make payments for the next number of years and I better think about what are my employment prospects, what are the chances that I can make those payments, and what would happen if I lose my job or if I don’t get the bonus that I got the last few years,” he said.

“If there are some sentiments among consumers that a) jobs are going to be riskier, [and] the bonuses are not going to be happening, it’s going to be rational to hold back on these kinds of purchases,” Glomm said, adding that RVs are just one component of the durable goods category.

Slowing RV production on its own wouldn’t necessarily be cause for alarm, but other cracks are starting to appear in the economy as well.

U.S. gross domestic production grew at a 2.1 percent annualized rate in the second quarter, down from 3.1 percent the prior quarter, making for the second weakest reading in over two years. If that wasn't enough, recession fears moved to the forefront last week when the spread between the 2-year and 10-year U.S. Treasury yields turned negative for the first time since 2007. Such an event has occurred ahead of each of the seven U.S. recessions in the past 50 years.

Tale of two economies

Even so, the U.S. economy appears to be on solid footing.

"Key signals such as labor and credit trends remain quite healthy,” Credit Suisse chief U.S. equity strategist Jonathan Golub said in a note sent out to clients on Tuesday.

Even if the economy is slowing, it's not exactly being felt in Elkhart. Government data shows Elkhart County’s unemployment rate was 3 percent in June. While that’s up from 2.6% one year ago, it’s down slightly from April.

Thor Industries, located in Elkhart, is one of the world’s largest RV manufacturers. In its fiscal third-quarter, the company reported its wholesale shipments in North America fell by a double-digit percent, but it says things are looking up.

"During the remainder of our fiscal 2019, we expect the North American dealer inventory rationalization will continue, but we expect to see a resumption of growth in the North American markets in 2020,” said Thor President and CEO Bob Martin in the company’s third-quarter earnings report.

Schmucker agrees.


"We have been picking back up in the last three weeks,” he said. “Im hopeful that it was just a pause for a short period of time, and that it is actually coming back. Right now business is fairly close to what it was a year ago.”