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Restoring Confidence

Traditional indicators of the state of the Pool and Spa market are incomplete. There just might be a better gauge…

If anyone in the pool and spa industry did not know how the macro economy affected the business, they certainly do now. After following the housing market off the proverbial cliff, the pool and spa industry is attempting to correct itself, but is still languishing in morbid sales numbers. The shellacking that the housing and consumer credit markets took during the recession had an immense effect on the industry. After years of positive growth, an extreme drop in new housing starts caused inground pool sales to nosedive, and now stand at under a third of their peak totals during the middle of the decade. Coupled with that, the decline in home prices dried up consumer credit, which in turn did the same for the rest of the pool and hot tub market. Though we have seen positive growth over the last two years, it has been modest as the industry has awaited the resurgence of the housing construction and credit markets.

The Drawbacks of Traditional Indicators

What has become clear as a result of the recession is the degree to which the pool and spa industry’s performance mirrors that of the housing market. Almost any indication of a rise in the housing sector has been accompanied by an increase in pool construction and spa sales. For various reasons, these indicators seem to be specific to certain segments; namely new housing starts align with inground pool sales while home resale prices seem to anticipate pool and spa sales overall. When new housing construction picks up, we begin to see an increase in inground pool construction. The same relationship is true with home prices and hot tubs and the overall market sales. However, the extent to which these indicators are category specific is very noticeable; such that an increase in new housing starts will have a great effect on inground pool installations, but not as much in hot tub sales. Therefore, using these alone as a judge of the market will leave you with incomplete information.

Though knowing these indicators is useful in judging the vitality of the pool and spa market, they are not predictive enough in their approach and rely on past months’ data that may not accurately reflect the current economic conditions. As we all can attest, in today’s competitive global economy, using outdated information can leave you high and dry. What we need is an indicator that is more forward looking.

How Consumer Confidence Impacts
the Industry

Consumer confidence is one of the foremost indicators for big ticket purchases such as pools and hot tubs. High levels of consumer confidence indicate that consumers are optimistic in many aspects, but mainly in the security of their income sources; and they are willing and looking to purchase goods. This correlation is especially true between the confidence index and inground pool sales, which can be seen in the chart below. Currently, as consumer confidence has plateaued at around 40, we have seen pool sales do the same.

Pool Sales vs. Consumer Confidence

Furthermore, this relationship appears to be almost immediate. When consumers’ confidence increases, there is very little lag time before they purchase goods. This can be seen in that for almost a third of new pools constructed, the period from first contact with a builder to completion is only 1-2 months, which is a short amount of time for a major construction project. This correlation between the consumer confidence index and the pool and spa market’s performance shows us that consumer confidence is a much better predictor of current and future market trends than merely new housing starts and home values.

Period Between Contact and Installation

What is Consumer Confidence Saying Now?

Though consumer confidence is a useful tool in forecasting consumer demand, it is hard to project what course consumer confidence will take. An innumerable number of factors outside of economic conditions affect the confidence of consumers, from the political arena to national security to natural disasters. Logically, anything with infinite influences would be difficult to predict to say the least.

Recently there have been some encouraging signs from the confidence index. Though it has yet to fully take on an upward trajectory, it has ceased its free fall from the recession and has begun to take a positive route, albeit at a very slight arc.

In the above graph, we have used a form of time-series regression to simulate a greatest probability outcome for confidence and pool sales in 2012. If consumer confidence continues its upward rise (as many economists currently predict), then it is reasonable to assume that new pool construction will follow a similar course. In this scenario we would expect to see between 65,000 – 70,000 new pools built in 2012, a roughly 15% increase to the current level of activity. Hopefully, this high correlation between consumer confidence and inground pool sales will prove to be a harbinger for a lasting recovery.

All data in every issue of Waveline is from reports available in our Pool & Spa Report Library: www.pkdata.net/PKData/library1.htm

Waveline™ is a periodic report by P.K. Data, Inc. to inform decision makers in the swimming pool and hot tub industries about noteworthy trends that we uncovered during our recent research. If you no longer wish to receive this publication, please reply to this email with the word UNSUBSCRIBE in the subject field. You will then be immediately removed from the Waveline™ distribution list. We otherwise welcome your comments and suggestions. You may contact the authors by emailing info@pkdata.net.

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