Gary Horvath is a USPTA master pro, founder and past president of the USA Professional Platform Tennis Association prior to its merger with USPTA, a certified coach with USA Volleyball and a long-standing member of the Wilson Advisory Staff.
His experience as a tennis pro has covered the entire spectrum from grassroots to college tennis. In addition, Gary Horvath has conducted extensive business and economic research that has largely supported the state of Colorado's economic development efforts.
MOMENTUM VS. HEADWINDS
Tennis and the Turbulent U.S. Economy
By Gary Horvath
In any economy, there is always a battle between momentum and headwinds.
Recently, the U.S. economy enjoyed a record expansion, 128 months, that ended in Q4 2019. In March and April 2020, the momentum gave way to COVID-related policies. Although the National Bureau of Economic Research determined the COVID-19 recession lasted only three months, the headwinds prevailed through 2020 and early-2021. As the year progressed, the economic momentum became more forceful.
Momentum - U.S. Economy and Tennis industry
Briefly, the current level of demand is a result of increased personal consumption. It is driven by extensive stimulus spending and increased personal savings during the lockdown. In addition, high-wage earners were affected less than middle and low-wage earners.
Table I shows U.S. economic indicators in 2019, how they decreased in 2020 because of COVID-19 related policies, rebounded in 2021 and 2022, and will level out in 2023.
GDP and Consumption
Between 2010 and 2019, real GDP and personal consumption increased at a compound annualized rate of 2.2% (personal consumption accounts for about two-thirds of real GDP). Both declined in 2020 as a result of lockdown policies. Much of the recovery occurred in 2021 and 2022. By 2023, the effects of stimulus funding will dissipate, and economic activity and the labor market will return to pre-pandemic growth rates.
A similar situation occurred with wage and salary employment, except the return to pre-pandemic growth rates took more time than the recovery of economic activity. Employment increased at an annualized rate of 1.4%, or an average annual level of 1,960,900 jobs between 2010 and 2019. After extreme volatility between 2020 and 2022, the U.S. will add approximately two million jobs annually in 2024.
In 2019, the unemployment rate was 3.7%. As a result, labor shortages were a concern in many industries. The rate soared to 8.1% in 2020 but fell to 5.4% in 2021. Even at that level, labor shortages returned. It will be more difficult for businesses to find workers as the unemployment rate approaches 3.0%.
Until 2021, the Federal Reserve attempted to keep inflation, as measured by the PCE deflator, below 2.0%. Inflation rose to 3.9% in 2021 and will remain elevated through 2023.
The Tennis Industry
TIA/Sports Marketing Survey compiles the existing tennis industry data. It shows there was declining participation during the decade that ended in 2019. The number of participants slipped to 17.68 million. Participation jumped to 22.58 million during 2000 and 2021. During 2020 and 2021, racquet sales increased, but ball sales were lackluster.
The TIA/SMS 2021 data does not mention the construction of new courts or the change in the number of teaching professionals certified and hired during 2020 and 2021.
In short, there is momentum in the U.S. economy and tennis industry.
In addition to the good news about the economy, there are headwinds. Some have the potential to disrupt or derail the economy and the tennis industry.
There are concerns about the number and severity of the risks to continued growth. Recently, there has been an increase in articles forecasting a recession as early as 2023. Contrarians respond to this commentary with the old joke that economists have successfully predicted nine of the last five recessions. Many economists have a poor track record for forecasting recessions!
Table II compares some of the headwinds from 2019 and 2022. Additional commentary follows after the table.
Impact of Lockdown Policy and Assistance
Two years ago, Congress and the Federal Reserve developed fiscal and monetary stimulus programs to help individuals and businesses recover from lockdown policies.
The programs considered two sets of risks. First, stimulus programs might increase the possibility of extending the recovery if they provided too little assistance. Second, the likelihood of a different set of problems, such as inflation, was higher if stimulus programs were too aggressive. The country’s leadership chose the latter strategy. In some instances, governments and other organizations assisted citizens and businesses. For example, the USTA provided limited assistance to clubs and industry organizations.
During Q2 2020, people were not allowed to participate in their favorite physical activities, and they could not dine at their local restaurants or travel to their favorite destinations. Fortunately, health officials determined that tennis naturally met social distancing criteria. Consumers saved their money, reduced credit card debt, and purchased sporting goods equipment. They lifted weights, rode bicycles, went four-wheeling, or played golf or tennis.
Tennis benefitted from the lockdown policies, stimulus programs, and financial assistance. At the same time, there were unintended consequences to the COVID-19 related policies that affected society and the tennis industry.
In most previous recessions, workers returned to their jobs as soon as possible. The Bureau of Labor Statistics reports there have been about eleven million monthly job openings since October 2021, and there are about 0.6 unemployed people to fill each job. People have not returned to work for the reasons listed below.
There was, and still is, concern about the return of COVID-19 and its variants.
Women and other caretakers were cautious about returning to work because of uncertainty about who would care for their family or friends.
Some workers chose to stay on unemployment rather than return to their jobs.
The net worth of some older workers increased (real estate and equities) enough that they felt they could retire.
Some workers left the labor force or used this situation to upgrade their job.
The supply of workers in the U.S. economy and the tennis industry will not meet the demand in the near term. As the unemployment rate decreases, the situation will continue to deteriorate.
For at least three years, industry leaders acknowledged the lack of certified tennis professionals. USPTA, PTR, and USTA have not educated and certified enough professionals to meet the needs of the five million players who took up the sport in 2020 and 2021.
Global Supply Chain Disruptions
There is more to supply chain management than meets the eye. Supply chain problems for many goods are unlikely to go away in the near term.
The most visible supply chain disruptions involve overseas companies. The challenges in this process include the following:
Over the past two years, some overseas workers were not allowed to work because of COVID-19 restrictions.
The demand for goods was far greater than in the past.
Inputs were not available, or their costs had become prohibitive.
Container ships were not available, or the shipping costs had increased significantly.
Backlogs of container ships at American ports have occurred because of trade agreements with certain countries or the lack of port workers, long-haul truckers, or workers in warehouses.
Demand for goods and services changed in response to COVID-related policies.
Shipping is seasonal. The peak season for shipping is between the start of school and the holiday season. It is not possible to “catch up” during this peak period.
Businesses may want to think about changing suppliers or inventory levels for specific goods or inputs.
Supply chain disruptions have affected the automotive and semiconductor industries. There were also shortages of tennis balls in 2020, and there may be additional shortages in 2022. Most tennis equipment is manufactured overseas, from balls to clothing. The tennis industry could experience numerous challenges if there is a shortage of these goods.
U.S. Inflation began to increase during the first quarter of 2021. Comments about higher inflation rates are listed below.
Two years ago, U.S. policymakers knowingly developed stimulus programs that had the potential of causing an increase in inflation. That decision was better than the alternative.
Inflation is not a by-product of the Russia-Ukraine conflict; however, that dispute may cause inflation to increase.
Businesses have raised wages to address the unexpected labor shortages. These increased wages benefit workers, but they increase business costs and inflation.
Supply-chain disruptions often increase product costs, which will increase inflation.
U.S. energy policy will increase direct and indirect costs for consumers and all industries. This has been a source of inflation.
The Fed has begun raising interest rates to address inflation. As a result, it will be more costly to purchase real estate and conduct business. Higher interest rates will impact the equities markets.
It will be difficult to halt the inflationary spiral if these factors play off each other. The outlook is for increased inflation through at least 2023.
The tennis industry will feel the effects of rising inflation.
Momentum vs. Headwinds
Table III provides a side-by-side comparison of the current risks to the economy and the tennis industry.
The U.S. economy is resilient, and there is momentum driving economic growth. The risks mentioned in Table III will diminish economic activity.
The success of the tennis industry will depend on the health of the U.S. economy, the ability of the accreditation and certification organizations to educate and certify teaching professionals, and the ability of industry leaders to take the politics out of tennis.
Stay tuned. It will be a wild ride!
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