The most exciting two minutes in sports just might be a fast track to a better economy.
This Saturday’s Kentucky Derby brings pause to take a peek at what has been quite the banner year for the business of thoroughbred horses, historically a reliable follower of investor risk taking that drives (or doesn’t drive) the broader economy.
Sales numbers from Keeneland, a horse auctioneer in Lexington, Kentucky which sold eight of the 13 three-year-old fillies competing in this year’s Kentucky Oaks at Churchill Downs the day before the Derby, tell the story. The company’s median price for a two-year-old thoroughbred hit $200,000 this year, about 30% higher than the 2013 median.
Just like cars or major appliances, sales of horses lost ground during the recessionary years of 1990 and 2001, bouncing back each time, and then dropped off dramatically for a more extended period following the financial crisis of 2009. But 2013 brought a significant rebound – Keeneland did $534 million in sales, a third more than it did in 2012. That’s still well below the peak of 2007, when sales topped $800 million. But it’s a whole lot better than the $396 million in revenue in 2009, a trough from which recovery had been slow until recently. Like anyone else, breeders cut back on production during tough times. The number of new thoroughbreds born each year – what’s known as the annual foal crop – dropped by as much as 39% in some recent years.
A Churchill Downs workout (Wikipedia)
“Yes, 2008 and 2009 were as devastating to us anyone else,” says Keeneland VP of Sales Walter Robertson, whose base of moneyed clients stretches across 50 countries, including the majority of America’s 50 states. And now? “I feel good about 2014, I think we’ve bottomed out,” he says.
Separately, another big industry player, the Ocala Breeders Sales Company, just closed out its spring season last month by reporting that 767 horses changed hands for $57 million in revenue, about $9 million more than a year ago.
Does a recovery in the horse business mean that the economy is poised to race ahead? Nothing is ever certain, but recent historical evidence shows a pretty strong correlation. Jeffrey Kleintop, chief market strategist for LPL Financial in Boston, points out that capital spending is picking up just as equine spending is. “Businesses are putting more money to work,” he says.
Kleintop is the architect of LPL’s Current Conditions Index, a measurement of economic indicators such as weekly unemployment claims, weekly retail sales data, business lending, commodity prices and shipping traffic. He started the CCI in 2009, shortly after the financial meltdown, and has mostly watched it hover in sluggish growth territory ever since. The scale, initially zero-based with points added or subtracted as the economic numbers moved, hit a low of -150 in March of 2009 before moving to the 200 to 250 range – indicating limited growth – over the bulk of the following four years.
But his latest reading – the index reached 275 just this week – is the high water mark since the recession, and close to the 300 reading that would signal strong growth.
“Horse owners are ponying up, and so are businesses,” says Kleintop. Groan at the pun if you like, but as Kleintop notes, a breakthrough in economic growth is essential to sustaining the stock values that have spawned from last year’s market run. As an economy we’re still trotting, but we’re trotting faster.
Follow Me on Twitter
This entry passed through the Full-Text RSS service — if this is your content and you’re reading it on someone else’s site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.
Powered by WPeMatico