Messing about in boats

A sharp rise in boat buying suggests that US economic expansion has matured.

A key question for investors is how to gauge the point we are at in the US business cycle. Some are worried that we have already surpassed the length of the previous expansion. According to data from the National Bureau of Economic Research, we are 99 months into an upward cycle that started in July 2009, while the 2002-07 expansion lasted for 72 months. That said, we are still below the lengthy expansion of the 1990s (119 months between April 1991 and February 2001). While looking at the duration of economic cycles is perhaps too simplistic, it may be fair to say that the current expansion is ‘mature’. Car and home sales have reached ‘cruising speed’ and there are no further cyclical gains to be expected from either of these sources, in our view.

One piece of anecdotal evidence that economic expansion has reached ‘maturity’ comes from purchases of pleasure boats. A typical ‘discretionary’ purchase, boat sales tend to accelerate during the later phases of economic expansion, outperforming broader consumption trends. This is precisely what is happening now in the US, as the value of pleasure-boat purchases rose 20.7% y-o-y in the three months to end-August, compared with growth in nominal consumption of ‘only’ 4.0%. Pleasure boats now represent 0.15% of total US personal consumption (see chart), a share that was reached in the later phases of previous phases of economic expansion.

But periods of mature expansion can last for a while. We continue to think a recession is very unlikely in the near term in the US. Financial conditions remain very loose and labour market signals such as the number of job openings or initial jobless claims continue to flash ‘green’.

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