A Recession Could Mean Less Discretionary Dollars For The Pool Industry

Pool industry analysts are concerned that a recession could mean less discretionary dollars spent in the backyard over the next few years. In June, inflation increased to 9.1%, the highest it’s been since 1981. Today, the dollar is at a near 1:1 ratio with the euro. The last time there was a parity between the two currencies was 20 years ago. With questions of a looming recession, over 70% of Americans think we may already be in the middle of one.

The majority of financial analysts are convinced we already are headed for a downturn, according to Fortune. Consequently, many consumers have already begun to cut back on their discretionary spending, particularly for home improvement projects.

A recent poll conducted by CreditCards.com showed that 47% of consumers surveyed said they don’t plan to increase their discretionary spending.

Furthermore, Forbes forecasted that 7 in 10 people feel less confident making a major purchase than just 6 months ago. These numbers indicate confidence has sunk to pre-Covid levels and it appears that consumers have begun to curtail making larger discretionary purchases.

Gas prices surged to well above $5.00 a gallon throughout many areas of the U.S. on the heels of the situation in Ukraine. Prices have only now slowly begun to come back down. As of today’s writing, the national average for a gallon of gasoline stands at $4.57. Reportedly 26% of consumers have begun to belt tighten during conditions where they’re spending more at the pump as well as at the grocery store.

These cost-cutting measures to combat rising inflation are what we’ve seen occurring throughout the U.S. and indicative of what transpired in the years leading up to the Great Recession. Over 70% of economists surveyed by the Financial Times said they expect a recession to occur by the end of 2023.

While many organizations within the pool industry have reported record-breaking sales over the last two years, several quarters of decline have already begun to erode gains made during the pandemic. Rising costs of materials and a rapidly shifting consumer environment are predicted to impact sales through the end of ’22 and well into ’23.

During the height of the pandemic, the industry experienced an explosion in terms of demand for new pool construction. Consumer interest in improving the backyard was at an all-time high as many were quarantining in their homes, avoiding travel, and choosing to reinvest in their outdoor living environment. Building a swimming pool became a top priority for many homeowners.

The term “unprecedented demand“ suddenly became a buzzword on everyone’s lips during the pandemic. Builder and consumer confidence was suddenly at an all-time high. Those who truly know this industry can tell you that change happens at near glacial speeds during the normal run of things. To see a spike in demand the types of which we experienced was indeed unprecedented.

The facts are that inevitably what goes up, must come down. Nothing could be more true than how pool companies performed in the face of an economic downturn like the one that we saw during the Great Recession. The fact is that if things continue their current course we could very well experience an “unprecedented contraction” in the pool industry.

Inevitably, some of the largest firms have been the first to feel the changing economic climate. This is indicative by how stocks are performing across the board throughout the pool industry.

Presently, the Nasdaq is down roughly 29% YTD and the S&P 500, which had its worst first half since 1970, is off by roughly 19.5%. Consequently, it appears that a reversal of fortune for some of the largest pool companies has also been felt simultaneously. Since the start of 2022, the Big 3 are down an average of -43.21%.

It is a fact that the pool construction industry is directly tied to new home construction. Given that a large portion of consumers who purchased a swimming pool over the past three years was based on pent-up demand in the market, new construction is needed to keep pace.

As the market begins to cool, the trajectory for new sales takes on a different path that has led many analysts to reset expectations. Additional analysis showed during the month of May, the market for new home construction declined by 14%.

Higher prices, labor problems, and shortages of equipment and materials mean that building a home or for that fact, a swimming pool has ultimately become more expensive and for some is becoming out of reach.