Analysts in the pool industry are afraid that a recession may result in less discretionary money spent in the backyard over the next few years. In June, inflation reached 9.1 percent, the highest level since 1981. Today, the dollar has a nearly 1:1 exchange rate with the euro. The last time the two currencies were at parity was 20 years ago. In terms of an impending recession, more than 70% of Americans believe we are already in the midst of one.
Has the Pop Finally Arrived If a Recession Is Here?
According to Fortune Magazine, the majority of financial specialists believe we are already on the verge of a downturn. As a result, many consumers have already started to reduce their discretionary expenditure, notably on home repair projects.
Consumers Appear to be Reducing Their Spending
In a recent CreditCards.com poll, 47% of those surveyed do not intend to boost their discretionary spending. Furthermore, Forbes predicts that 7 out of 10 people are less confident in making a significant purchase than they were 6 months ago. These figures imply that consumer confidence has returned to pre-Covid levels, and it appears that consumers have begun to limit greater discretionary expenditures.
A Time to Tighten the Belt in the Face of Rising Inflation
On the heels of the Ukraine scenario, gas prices soared to much beyond $5.00 per gallon in several parts of the United States. Prices have only recently began to fall again. The national average cost a gallon of gasoline is $4.57 as of this writing. According to reports, 26% of consumers have begun to tighten their belts during times when they are paying more at the pump and the grocery store.
These cost-cutting initiatives to battle growing inflation have been observed throughout the United States and are symptomatic of what occurred in the years preceding the Great Recession. Over 70% of analysts polled by the Financial Times believe a recession would occur by the end of 2023.
While several pool companies have reported record revenues in the last two years, many quarters of decline have already begun to erode gains earned during the pandemic. Rising material costs and a quickly evolving consumer environment are expected to have an influence on sales through the end of 22 and well into 23.
Market Conditions in the Pool Industry Begin to Reduce Demand
During the height of the epidemic, the sector saw a surge in demand for pool construction. Consumer interest in enhancing their backyard was at an all-time high, as many people quarantined themselves at home, avoided travel, and chose to reinvest in their outside living space. Many homeowners have prioritized the construction of a swimming pool.
During the pandemic, the phrase "unprecedented demand" became a watchword on everyone's lips. Builder and consumer confidence reached an all-time high. Those who genuinely understand this field would tell you that change happens at near-zero speeds during the usual course of events. The types of surges in demand that we saw were unprecedented.
The facts are that what goes up must inevitably come down. Nothing could be more true than how pool companies fared in the face of an economic crisis such as the Great Recession. The truth is that if things continue on their current path, the pool industry could face an "unprecedented contraction."
Pool Industry Stocks Fall as a Recession Approaches
Inevitably, some of the largest corporations have been the first to feel the effects of the changing economic climate. This is seen in how stocks are performing across the board in the pool business.
The Nasdaq is currently down nearly 29 percent YTD, while the S&P 500, which experienced its worst first half since 1970, is down roughly 19.5 percent. As a result, it appears that some of the greatest pool firms have also experienced a turn of fortune. Since the beginning of 2022, the Big Three have lost an average of -43.21 percent.
Pool Construction Is Inextricably Connected To New Home Construction
The pool construction sector is inextricably linked to new house construction. Given that a major number of consumers who acquired a swimming pool in the last three years did so due to market pent-up demand, new construction is required to keep up.
A Cooling market and Rising Interest Rates
As the market begins to cool, the trajectory for new sales shifts, causing many analysts to revise their forecasts. According to additional research, the market for new home development fell by 14 percent in May.
Higher prices, labor issues, and equipment and material shortages mean that building a home or, for that matter, a swimming pool has grown more expensive and, for some, out of reach.
Recession in a Housing Crisis
Because of our country's ongoing housing crisis, places such as California, where the median home price is now $797,000, demand a minimum annual income of $158,000 to qualify. The Fed's intention to raise mortgage rates makes it even more difficult to buy a home. This delay suggests that the housing supply will remain constrained, putting buyers under unprecedented pressure.
According to the National Association of Home Builders, consumer confidence fell for the sixth month in a row in June, indicating that the market is cooling. As a result, both builders and consumers are adopting a "wait and see" attitude as rising mortgage rates continue to dampen demand.