Do falling RV shipments signal a recession?

The recreational vehicle (RV) industry has enjoyed exponential growth since the financial crisis in 2008. Buoyed by the broader economic recovery and a growing interest among millennials in the van life movement, total RV shipments grew by 204 percent from 2009 to 2017.

But with the current economic expansion cooling off and economists predicting a recession some time in the next couple years, the RV industry is feeling the pain.

The total number of RV shipments dropped by 23.2 percent in July compared to the previous year, according to the RV Industry Association, and the group is forecasting a 14.3 percent drop in towable RV shipments for 2019 and an 11.3 percent drop for motorhomes.

The year-over-year drop in July was the 12th straight month of year-over-year declines, and 2018 was the first annual decline in RV shipments since 2009.

The fortunes of the RV industry are tied to the economy more broadly because RVs and campers are considered a luxury item. But the industry has also been impacted by rising housing costs; a growing number of millennials live out of their camper vans as a way of avoiding expensive rents, particularly in west coast markets like San Francisco and Los Angeles.

And because RVs are a large expense—ranging anywhere from $10,000 to $200,000—sales of RVs can turn south with even the rumors of a recession. People who fear losing their jobs or part of their income are less likely to make a high-priced recreational purchase.

It appears that a recession may be coming. A survey by the National Association for Business Economists this month revealed that three out of four economists expect a recession by 2021, mainly because of a growing belief that the U.S. economy will be seriously harmed by the ongoing trade war with China.

The trade war has already directly impacted the RV industry. According to the Wall Street Journal, the industry estimates that as many as 523 items related to the manufacture of RVs could be subject to tariffs.

Reuters reported in July that one industry analyst estimates that tariffs on Chinese goods have so far led to a 5 percent increase in the sticker prices of RVs. Coupled with the broader drop in demand related to the expectation of a recession, it’s not hard to see why RV sales have dropped.

While some see RV sales as a bellwether for the economy itself, various economic indicators have also signaled recession. The so-called yield curve inversion, where the yield percentage on short-term bonds is higher than on long-term bonds, has occurred multiple times this year. Typically, bond investors want to be compensated more on long-term bonds because the longer timeline exposes them to more risk. When short-term bond rates are higher than long-term bond rates, it means investors believe investing in the short-term is riskier, pointing to a recession.

The stock market also dropped sharply in response to news that the trade war is escalating. On Friday, the market went into free fall upon news that President Donald Trump was demanding American companies to relocate manufacturing away from China and back to the United States. Today, Trump signaled that trade talks with China will reopen, and stocks rose.

But stock market fluctuations aside, the United States is not currently in a recession. Unemployment remains low, so the drop in RV sales is more likely an indication of the expectation of a coming recession, in addition to tariffs leading to higher prices on new RVs.