||High-End Spenders Shrug Off Headwinds
Sales of Big-Ticket Items from Washing Machines to Boats Show Gains
Despite continued weak employment data and gridlock in Washington, consumers are showing surprising signs of confidence, and opening their wallets to buy big-ticket items ranging from washing machines to fast boats.
U.S. shipments of home appliances continued growing, helping double third-quarter profit at Whirlpool Corp. as stronger U.S. housing sales offset weakness in much of the world. North America's largest appliance maker also boosted its full-year earnings forecast.
"We feel good about the fourth quarter" outlook for U.S. appliance sales, Jeff Fettig, Whirlpool's chief executive, said in an interview. Wholesale-shipments of the so-called Big Six appliance categories -- washers, dryers, dishwashers, refrigerators, freezers and ranges and ovens—rose 6.3% from a year earlier to four million units, the Association of Home Appliance Manufacturers reported Tuesday.
Earnings and forecasts also are up at other companies making pricier and more extravagant consumer products. Motorcycle maker Harley-Davidson Inc. and Polaris Industries Inc., whose products include all-terrain vehicles, reported Tuesday sharp increases in profit and sales for the third quarter. They echoed Winnebago Industries Inc., a maker of motor homes, trailers and other recreational vehicles, which posted strong quarterly results last week.
"The nerds and geeks are making tons of money," said Allen Sinai, chief economist at Decision Economics Inc., a Boston research firm, even as the typical American suffers from stagnant wages and worries about layoffs. The latest employment data, released by the Labor Department Tuesday, offered little comfort about the health of the overall job market as employers added a fewer-than-expected 148,000 jobs in September. And many consumers remain wary.
But employees at many high-tech and energy companies, as well as some farmers, have been doing very well. A surging stock market and recovering house prices have helped to embolden well-heeled Americans.
Indeed, the wealthiest Americans, who took a significant hit during the recession as stocks plunged and homes lost value, have seen a far stronger rebound than their less affluent neighbors.
The average household in the top 20% of earners has seen its income rise more than 6% since 2008, before adjusting for inflation, according to data from the Census Bureau; among the top 5%, the increase has been nearly 8%. Households in the middle of the income distribution have seen just a 2% gain, on average, while incomes for the poorest Americans haven't returned to their prerecession peak.
Even so, the average American household spent $51,442 in 2012, surpassing for the first time its prerecession peak, the Labor Department said last month.
"If you have a home and a stock portfolio, things are looking better," said Craig Kennison, an analyst at Robert W. Baird & Co.
That has translated into splurges. The hottest part of the boat market is in high-end pontoons costing as much as $100,000, said Jared Lacefield, a boat manufacturers' representative in Clovis, Calif. He said some of the most eager buyers are tech workers and nut growers. "The amount per acre you can make on pistachios is insane," he said.
Auto makers also have been doing best at the high end. Sales of luxury cars in the first nine months of 2013 were up 12% from a year earlier. By contrast, sales of inexpensive small cars, such as the Chevrolet Sonic, Ford Fiesta and Toyota Yaris, were up just 6.1% for the same period, according to figures compiled by Autodata.
In September, about 60% of the 45,944 pickups sold by General Motors Co. were considered high-end models, equipped with leather seats, electronic features and higher-grade audio systems. "Definitely, the Detroit auto makers are all seeing people spending more for features even if they decide to buy an entry-level vehicle," said GM spokesman Jim Cain.
Scott Wine, chief executive of Polaris, said that for many people in middle America, off-road vehicles used for work and play offer a type of entertainment that can be less expensive than taking long trips or joining a golf club. His company's sales in the quarter rose 25% to $1.1 billion and continued to be strong in early October despite the temporary federal government shutdown, Mr. Wine said.
"We're optimistic about the rest of the year, and we're expecting to do well in '14," he said in an interview. Polaris's profit in the quarter rose to $113.1 million, or $1.59 a share, up from $94.3 million, or $1.33 a share.
Higher-income Americans "are finally beginning to start spending again," said James Hardiman, an analyst at Longbow Research in Cleveland. He estimates that retail sales of leisure boats made by Brunswick Corp., Lake Forest, Ill., were up nearly 10% in the third quarter. Brunswick is due to report results Thursday.
Likewise, Milwaukee-based Harley, which posted a 21% rise in third-quarter profit, cited strong demand for its 2014 line of motorcycles introduced in August. Harley has been expanding sales to younger riders, women and minorities, adding to its core fan base among white male baby boomers.
"We're cautiously optimistic about the (U.S.) economy," said Keith Wandell, Harley's CEO. The company increased its financing for subprime borrowers but said it was being prudent. Revenue, including motorcycle sales and financing, increased 7.5% to $1.34 billion.
Retail sales of Harley motorcycles were up 20% in the U.S. and 6.5% elsewhere. Part of the U.S. gain reflected greater availability of Harley motorcycles in the latest quarter compared with a year earlier, when a software installation disrupted production. But Harley officials said strong sales of new models were a bigger factor. The company says its new Rushmore series offers better brakes, making it easier for novice riders to control the motorcycles, and an improved cooling system to divert exhaust heat from riders' legs.
Despite Harley's rapid sales growth in the latest quarter, its U.S. retail sales for the full year still are likely to be about 35% below their 2006 peak, Longbow's Mr. Hardiman said.
At Winnebago, based in Forest City, Iowa, sales in its fiscal fourth quarter ended Aug. 31 were up 32% from a year earlier. "We knocked it out of the park in the fourth quarter," Winnebago's chief executive officer, Randy Potts, told analysts last week when the company reported results.
Frank Morgan, sales manager at family-owned Hufnagel & Majors Inc., which sells recreational vehicles including Winnebagos and other travel trailers, said business began picking up in the summer. "I think people feel a little more secure," said Mr. Morgan. Interest rates are low and banks more willing to lend, he said. He also said the growing natural gas industry in western Pennsylvania's rich shale deposits has boosted jobs and strengthened the local economy, making customers at the Harmony, Pa.-based dealership feel more comfortable about spending.
"You don't hear people talking about the price of (gasoline) anymore," he said, which indicates a level of security. His average customer spends about $15,000 to $25,000, he said.
(Source: The Wall Street Journal, 10/23/13)
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