Superyachts: The Key to the Global Economy

getting in the way of investment and exports. The US consumer has been single handedly keeping the US recovery on the road for much of In fact, without consumer spending, the economy would have shrunk in each of the past two quarters, and there are some concerns lately that even

consumers are starting to wobble. In a few minutes, I'm going to talk about some new tools we have for monitoring US consumers, especially the retail side of the economy, with our chief US economist and Carl rick O Donna. I'm also going to give you just a final taste of the Bloomberg New Economy Forum in Beijing last week, a conversation about Brexit and the future or of Europe

with Germany's Deputy Finance Minister. Your cookies, but first, our Atlanta based real economy reporter Mike Sasso has been testing the waters in a market that turns out to be a surprisingly good barometer of the U s consumer it's not punk kin pies or turkey, but luxury yachts. Let me get this guy on a took. If you guys don't mind, couldn't I just beat one minute and a Stevie Gay In South Florida, I meet Tom Convoy. He sells not just yachts, but super yachts, the biggest, flashiest

votes and individual can buy. And this day he's giving private tours of vida of vessel that's long. A few Mexican businessmen shuffle in, Hey, how are you good man? How are you doing? Zeal Everything very well? Yeah, yeah. Boy's yacht is the kind of super rich plaything that few people will ever come close to it, and to preserve its pristine condition, even the wealthy guests climbing aboard were asked to leave their shoes and cocktails on the dock.

The boat is built by a Dutch company called Heaths and Yachts. It comes with a master stateroom in five guest staterooms, a full gymnasium and quarters for thirteen crew members. Pursing it will set you back a cool fifty million dollars. Convoy took a break from the tours to speak about the yacht industry during the Fort Lauderdale International Boat Show, one of the biggest marine expos in the world. As it turns out, even people with money to burn are

increasingly nervous about burning it. Chalk it up to the USS trade war with China and ugly Brexit in Germany teetering on recession. He says, this is a not this is a confidence by can you buy something like this? Your confidence has to be your confidence. And even when you have a great deal of money, you don't just go because when you give you that real good confidence that there's there's good things common, you know are not

good things going, but things are gonna be going. Boating yacht sales are seen as a good barometer of the economy because they're highly discretionary, Plus buyers can easily put things on hold when conditions deteriorate. That's why the industry is nervous about a recent decline in boat purchases this year from small skiffs three hundred foot vessels. And it's not just about the ridge The U S boating industry employees or help sustain the jobs of more than six

hundred thousand Americans. No one can say for sure if the sales slowdown is temporary or something more worrying, like a hint that the US economy is tilting towards recession. But with consumer spending accounting for seventy of the U. S economy, there's a lot writing on the answer. Chuck Cashman has a great vantage point into the U. S. Boating industry. He's the chief revenue officer of Marine Max Incorporated, America's biggest chain of boat dealerships. Nineteen is the shoppiest

year he's ever seen. I think we're in a great economy, and historically great economy. I do understand we're closer to the end of a good cycle than we are in the beginning. Right, It's uh, it will go on forever. However, it's the growth and clock is right twice a day. If everybody is just gonna say we're heading for a downturn, yeah we are. But when a point right, I don't think this weekend, So you know that's how I'll attack

this weekend. Yeah. Overall, boat sails and should hit their second highest level in the past dozen years, according to industry data, and there's no sign of any slowdown. In Florida. In early November, organizers of the boat show created an exclusive super yacht village this year, where the wealthy arrived by water taxi to tour ships as long as three feet. Local hotels were sold out all around the show's vast marina complex, and parking spaces a half mile away costs

forty dollars. Lindsay Pieza is an economist at Steple Financial. She said consumers are behaving oddly this year. Given the strong economy, she would have expected people to keep spending more each month. Instead, they're buying some items only to cut back on others. The consumer is still out there. May be buying that big screen TV one month, but in doing so, he or she is foregoing uh that other purchase, be that a new winter code or going

out to eat with the family. So we're seeing this dramatic shift month to month, and that doesn't necessarily insinuate a very strong consumer going forward. Bob Dennison is a luxury yacht broker from Fort Waterdale. You remain somewhat upbeat. Most people will tell you that they are sort of cautiously optimistic. Orders are being made on new boats, used boats are buying. Weather is nice, but we're a somewhat

smart bunch, and we know that. You know, there are economic cycles that come in and out, and this market specifically is usually hit harder than most when there is an economic downturn because the things that we sell are things that are truly um things you buy for no you know, utilitarian reason you own a yacht unless you're a fisherman or your craft. You know, the the only reason that you're buying from these yacht, these white yachts

at the boat show is just for fun. But maybe people aren't going to be having as much fun anymore. The US will hold its presidential election next year, and to the leading candidates, Bernie Sanders and Elizabeth Warren are calling for a new tax on the wealthiest Americans. The voting industry fears that could scare yat buyers and persuade them to hold off on purchasing. A few years ago,

Dennison studied boat buying trends. He found that sales fall off in the months before presidential election, although they pick up again after it's over. That could make boat sales a bit cloudier as an economic barometer these days, which means we may have to look at other items to gauge whether there's going to be a recession. Economists also watch sales of movie tickets, big screen TVs, and even

cosmetic surgeries to see if the economy is turning. There are also market indicators with coable reputations, like the difference between yields on different maturities of treasury bonds. It's fair to say that the voting industry is increasingly anxious. However, Tom Conboy, the super yacht sales mean we heard from at the beginning, doesn't like the look of the election

season so far from here. I think of this politicals thing just keeps going, and there's you know, and there's muddy trench that it's and I did it's not going to help us for Bloomberg News and Michael Sasso. So that's the view of consumers from the ground, or maybe in this case the marina. I'm now joined by Carl

rick O Donna, our US chief economist. Carl, thanks for being here, and you have given us some interesting new research in the last week or so looking at this crucial question of the strength of the US consumer going into the holiday season. Tell us a bit about what you found. Well, there's a broader question over the the the ability for consumers to really continue propping up economic growth.

But what we did here I would look a little bit more narrowly at the holiday shopping season UH and identify the categories that are really relevant to that end

of season surge in sales. And of course that starts with the Black Friday holiday in the US, and it's called Black Friday because that's a historically the day of the year where retailers actually go from being in the red to being in the black given that pick up an activity, and there have been I'm actually I'm going to be in New York on on Black Friday, and I'm going to do everything I can to avoid any

large shops. But there has been some worry in the last even just in the last few weeks about whether consumers are starting to falter, whether we should worry about them carrying the US economy on their shoulders into twent twenty. What do you think about that. If consumers are are buckling, we've got a real problem on our hands. If we look at GDP growth excluding consumers. UH. In fact, the economy is bending contraction for the last two quarters and

would continue to contract into year end. So kind of the ex consumer economy really we could say, is in a recession. Now consumers are sent the picture, so it kind of doesn't make sense to take consumers out of that out of that equation, but that gives you a context of what's really propping up growth at the moment. So we really have to keep a very watchful eye on consumers, not just those retailers that are looking to go into the black, but also the broader retrajectory of

the economy. And when we look at that trend, UH, there's been reason for concern, but I'll say not panic

in some of the latest data. So for example, if we look at all of these inputs that we run into this holiday shopping model, things like demand for motor vehicles or overall spending momentum in the unomy, consumer attitudes, the household savings rate UH, and most importantly the household income trend, the wage and salary trend, all of those have been cooling over the last couple of months, if not quarters, and tell us that we are on a

weaker trajectory. I know, people listening when we have these conversations, people always say, what about internet shopping? Are these of these old data that the traditional data, surely it's not capturing how much of us are now buying online? Do you do you feel confident that we're capturing that side of the economy. Now, there have been problems historically that the Internet sales were not being captured is fully in

the data series. But what we're using for this particular study is the retail sales data from the Census Bureau UH, and that does capture Internet sales. And we can see that category growing at a very robust pace, about fifteen percent in year in year terms. So what in fact it is slowing? I can remember ten years ago looking at this data and it was growing at about a pace. But that that's a micro economic story within the broader data set. So we are capturing uh, Internet retail in

this data. What we don't capture here is the service side of the economy. Now, when we talk about consumer spending more broadly, absolutely services are included. But as we look at retail sales data here, and the big story is, you know, millennials want to buy experiences and not not items that they have to store in their very tiny apartments, and so those experiential purchases, if you're gifting someone a vacation or a massage or or some kind of service

at at the holiday season. Now, that's not going to show up in these metrics. Yeah, and as we know, a lot of them, they do not get used, which is a nice little earner for the people who give out the vouchers. You know, we've just been hearing about luxury yacht industry and how that's being affected by the

mood among consumers. It makes you think a little bit about, uh, one of the big political issues that we're going to hear a lot talk about a lot as we go into the US presidential campaign, the way that money has gone into the pockets of the very, very wealthy over the course of the last um ten or fifteen years particularly, do you see I mean, we would tend to think that if wage growth, for seeing wage growth at the bottom end of the wage spectrum, that's going to be

better for overall consumption than just having a lot of money going into the bank accounts of the super rich because they're not going to spend at all. Is that is that something you see? Because I know the pattern of wage growth has been you know, has been a bit better for the lower wage end of the spectrum

in the last few years. Sure, as you look at the composition of spending by income quartile, for instance, we definitely are seeing that this is now looking like a more mature economic cycle, to the extent that initially in economic cycles, you don't tend to have a very weak econ conditions for the upper income demographics. The lawyers and doctors tend to not be unemployed when the economy is

in recession. UH. And then later on in the cycle we see the unemployment rate for those with uh let's say, less education that tend to be in lower income demographics. UH, that tends to improve. And that's really what we're seeing in the data lately. UH. And to answer your question, UH, those demographic groups tend to have a much lower savings rate, which means that every dollar earned tends to get transferred

into consumption. And so there is a stronger macroeconomic consequence from improvement in in that end of the income spectrum compared to the top which tends to have a very high savings rate. UH. And so those dollars earned then get reinvested into financial assets typically, and that is going to be one of the things that I'm sure we'll

get talked about in the presidential election. Is certainly something that the likes of the International Monetary Fund has pointed to and saying that income income inequality, having the gains from growth not evenly spread can actually hurt growth itself. Plenty of stuff to talk about, Plenty of stuff that we want you, Carl to be watching very closely going into twenty But thanks very much and happy Thanksgiving. Thank you.

So I did promise you a final taste of the Bloomberg New Economy Forum last week in Beijing, and here we have it. It's part of a debate about Brexit and the future of Europe. Here's my conversation with your cookies, Germany's Deputy Finance minister, your cookies. When people often in the UK in this debate, people have pointed to Germany as the country that would push hard for a good

deal for Britain because German companies would be so affective. Um, it feels a bit like Germany, and indeed other parts of Europe have just now just putting their hands up saying let's just get this done. We're not we just want to get past Brexit now. Whatever it takes. Is that is that the German I want to get onto the impact of the broader impact on Europe, But what

about the German starts now on Brexit. Well, okay, so first of all, I think you're half sentence because is not complete when you say because the German companies are so affected. That's true, the German companies are affected. But I think the much bigger reason why Germany has tried so hard to UM to make the best of of Brexit is because of the very deep rooted friendship between our countries and the very close cooperation that we've had over decades and the work that we've done together in

the in the European Union. So so we're losing a very dear friend and UH and partners. So that's that's really the biggest UM reason why we try to be as constructive as we can in this And I would say that even the second round of negotiation, the German government has taken a very constructive stance in terms of trying to build bridges and trying to facilitate things the best we can UM and the other aspect. I think that's also very important for them For the question of UM.

I mean, we don't have a choice, but to except accept the Brexit decision, but we do have a choice to try to make the response of the European Union in terms of the transitional agreements UM, in the financial markets UM, in all of the rules and regulations that we have as UM as reasonable as possible UM, you know, like equivalence decisions with respect to UM the financial markets

I think are extremely strategically important. And the German government has been very very active in UM making sure and UM and UM and taking a position in the European Union UM of a constructive stance within the Brexit context, and if we think about the longer term impact for Europe UM. There had been an argument that said, once you lose Britain, it's all very sad, but you're also liberated to have some of the closer integration that Britain

had resisted from inside the European Union. UM. Do you think there is that potential that you would we would think of this as a as actually giving a new lease on life to us to a closer integration or will we actually say no, This was when a hole got blown out of the U and it was the

beginning of a further disintegration. So, first of all, I don't quite agree with the assessment because you know, if the assessment were true that it was Britain that held back the integration of the European Union, then the institutions of the Eurozone should have been much stronger and made much more progress because the United Kingdom never played at

all in that, because it's not in right. But you look at the lack of progress in the banking Union, which is only the the e U nineteen either the Eurozone countries. It's not like we've made a huge amount more progress in that than in the other agenditis. So I don't think it's really an issue that that Britain

held us back. UM. What I do think what is what people are realizing and why there has now been a new impetus to both the Banking Union and the Capital Markets Union, is of course that everyone now realizes that once the direct access and integration with London UM may change. We hope it doesn't change radically, but it

will change. Of course in some aspects. There has to be a response from the European Union and the if we want to assure the funding and financing of our real economy to the extent that we've had so far, um, we have to do our homework on banking union and capital markets union. I mean, any large global corporate in Germany that has sought financing for any large transaction at the global scale all has been doing it through London in the last twenty years, right, thirty years, and that

is now going to be more difficult. So if you're a dozen't respond and strengthen its banking union capital markets union, it will be to the detriment of Europe. So that's that made maybe the the sort of healthy thing that we have to get our act together. Thanks for listening to Stephanomics, and a very happy Thanksgiving to my fellow Americans. We'll be back next week with more on the ground

insights into the global economy. In the meantime, you can find us on the Bloomberg Terminal, website, app, or wherever you get your podcasts. We'd love it if you took the time to rate and review our show so it can reach more listeners. And for more news and analysis from Bloomberg Economics through the week, follow at Economics on Twitter.

You can also find me on at my Stephanomics. The story in this episode was reported and written by Michael Sasso was produced by Magnus Hendricks and edited by Scott Landman, who is also the executive producer of Stephanomics. Be sure to read Mike's original article on this topic, which was edited by Anita Sharp and Sarah McGregor. Special thanks finally to carl Rickardonna, German Deputy Finance Minister, Your Kukies, and

the Bloomberg New Economy Forum. Francesco Leedy is the head of Bloomberg Podcast