Today’s pool market seems to be a glass-half-full vs. glass-half-empty sort of environment. When compared with the dismal conditions last year, it’s easy to focus on the positive. But when looking back at 2006, the empty air sitting at the top of that water glass becomes very apparent.
Whatever your personal take, it’s clear that conditions have improved a bit in the first half of 2010. The questions are: Will this continue, and for how long?
“I think the biggest issue is the speed of improvement,” says Gary Dean Painter, an associate professor at the USC School of Policy Planning and Development. “We could easily have a period of relatively slow job growth over the next year or so. And while that’s the right direction, I know many people would like to see the U.S. economy add a lot of jobs.”
Recently, Pool & Spa News spoke with experts from both inside and outside the industry to discuss the economic outlook for the future.
Today’s conditions
Currently, many pool industry professionals are reporting modest improvements.
This is part of an overall rise in consumer spending, which is giving business owners a much-needed infusion of revenue.
“[Last year] more people were focused on essentials rather than discretionary purchases,” says Kathy Grannis, a spokeswoman for the National Retail Federation in Washington, D.C. “People would hold off on buying that patio set if they could make do with what they had. In recent months, we’ve seen an increase in spending on sporting goods, home décor and home furnishings.”
However, these encouraging figures should be tempered by certain realities. Home sales received a shot in the arm from a generous federal tax credit. But that largesse has now expired, and the housing market remains wobbly at best.
In addition, unemployment figures are high, in part because small businesses — which create the majority of new jobs — are strapped for credit and unable to invest in hiring more workers.
And speaking of credit, a historically tight lending market has hampered buying power for millions of Americans.
“Until the credit situation is resolved, new pools are going to be for people who have the access to the cash … it’s going to be a wealthy person’s product for a while,” says Bruce Fisher, vice president of global marketing for Hayward Pool Products in Elizabeth, N.J.
The twin issues of unemployment and credit will define how quickly the middle class comes back into play for big-ticket items such as inground pools, experts say.
“I think if job growth picks up [later this year], that’s a very positive sign for the middle class,” says Stephen Happel, a professor of economics at the Arizona State University WP Carey School of Business. “If job growth remains tepid, that’s a sign that the middle class is just going to continue to struggle along.”
In examining those numbers, Painter cautions against relying solely on the overall unemployment figure. It’s also helpful to keep track of the labor force participation rate, which measures the percentage of people aged 16 to 64 who are working, or are unemployed or seeking a job. “If you want to look at the change in the number of people actually working, that one is probably a more pertinent measure,” he says.
The level of government intervention also has these experts on watch. Some are concerned that stimulus funds injected into the economy may have artificially propped it up, and they wonder what will happen when the funds expire.
“For a real recovery to take place, it has to come from the private sector, and I believe that we are still not there,” says Manuel Perez de la Mesa, president/CEO of Covington, La.-based distributor PoolCorp.
This may prove key to fixing the lack of available financing, Perez de la Mesa says.
“Those deficits have to be funded,” he explains. “And they’re funded with capital that would otherwise have been available for private investment. If those deficits are eliminated, the government doesn’t need to borrow as much. Then the money that the government is now borrowing is available to be lent to private industry.”
Some wonder when interest rates will begin to rise and how that will affect the economy.
“I think [financing] will start opening up a little bit, because there are some loans being securitized in the broader market,” Painter says. “But at the same time, at some point I expect interest rates to
increase, and then that will counteract some of the stimulus effect of the underwriting.”
Short-term expectations
For now, these experts predict much of the same — namely that the economy will continue to move in the right direction, although not as quickly as most would like.
“The consensus by the Blue Chip forecasters is that growth this year is going to be 3.2 percent, and growth next year is going to be 3.2 percent,” Happel says. “They think inflation will remain moderate and the unemployment rate is going to come down next year.
“So all things considered, there’s a kind of ‘Don’t worry, be happy’ forecast from the crowd, but I just don’t know at this point in time.”
On the home front, the National Association of Home Builders expects a healthy uptick in the housing market. David Crowe, chief economist for the Washington, D.C.-based organization, predicts a 25 percent
increase in single-family starts this year, and 50 percent next year.
“The final straw is the significant amount of pent-up demand,” he says. “There are a whole lot of unformed,
delayed households, and those people are anxious to get out and begin the household formation that they’ve postponed.
“Even at a 50 percent [increase], 2011 will still be at half the underlying demographic need. We have large percentages because we were so far down in the cellar.”
But those numbers are not expected to translate, like-for-like, to the pool industry. There may be growth, but the percentages will remain small.
“There could be 5,000 more pools this year, which is not significant from an industry standpoint,” Perez de la Mesa says. “It’s good but it’s not significant — not when the industry is down almost 80 percent from peak levels. If you’re at 20 percent of the peak level, then you go from 20 to 22, that’s not a real recovery. It’s just that it didn’t get any worse.”
He expects several years to pass before new pool construction reaches “normal” levels, meaning about 80 percent of what the industry enjoyed during the bubble.
