Summer forecast
by Joseph SantangeloSqueezed by energy costs, interest rates and sluggish home values, consumers and visitors are still managing to spend.
Gasoline prices remain fixed near all-time highs. Interest rates have advanced to heights not seen in more than three years. Home values are slumping and sales have hit the lowest point in a decade. Foreclosures are up by double digits.
But don’t tell consumers.
Despite these threatening signs, the Cape Cod economy is proving generally resilient, in some cases benefiting from the high gasoline prices and certainly from a weak dollar that makes international travel here particularly cheap.
Industry sectors related to construction and real estate are slowing, and some restaurants and older motels continue to struggle, but many Cape businesses report sales running ahead of last year – as much as 7 percent better. Boat retailers in particular are having a very successful season.
Rising interest rates have curtailed home sales, and risky mortgages have accelerated home foreclosures. Yet appliance retailers and home stores, often dependent on homebuyers, report strong revenues. Auto sales are nearly in line with a year ago, although buyers are shifting to smaller, fuel-efficient cars and spurning some domestic models in favor of Japanese competitors.
Persistently high gasoline prices around $3 a gallon have yet to take a major toll on tourism, which accounts for 23 percent of the Cape economy. In contrast to 2005, the all-important summer visitor season started strong, aided by warm weather and without red tide beach closings of the past. Weather forecasts and last-minute Internet searches will continue to impact the summer lodging industry.
In fact, a financial squeeze on consumers this year could benefit Cape tourism. According to Dr. Clyde W. Barrow, director of the Center for Policy Analysis at the University of Massachusetts-Dartmouth, “most of the Cape’s U.S. tourist traffic is regional anyway. It comes out of the Northeast; and as disposable income shrinks, it increases the likelihood that people will stay closer to home.” For a complete transcript of his interview, click here.
Summer rentals and retail sales
Summer cottage rentals in many areas of the Cape exceed 2005 contracts, and hotel and motel operators are cautiously optimistic about the 2006 tourist season. With more second-homeowners renting their properties, inventories do remain high and last-minute renters often ask for discounts.
“Advance bookings were above last year, but we still have plenty of availability because more and more people invested in properties and put them up for rent,” said Lisa Armstrong, rental manager at Pine Acres Realty in Chatham. A change this year is that larger parties are renting three- and four-bedroom homes, while two-bedroom homes have been slow to rent. “People would rather rent a newer home than a cottage, and central air conditioning is becoming more and more popular,” she said.
As in recent years, businesses such as restaurants, specialty retailers and visitor attractions continue to compete hard for visitors’ and residents’ limited discretionary spending. Leisure-related businesses rely increasingly on advertising, promotions, couponing, special events, and other marketing tools to bring people in the doors.
“Consumer confidence is the index to watch,” said Wendy K. Northcross, CEO of the Cape Cod Chamber of Commerce. “So many of our small, service-based businesses on the Cape are dependent upon discretionary spending that it is critical the consumer feel comfortable doing that [spending].”
“Travel to Cape Cod is really a short trip for most of our core visitor market,” she added. “More than 30 million prospective visitors live within one tank of gas from Cape Cod. Typically, higher gas prices have benefited Cape Cod, as visitors choose a nearby vacation destination. In addition, our international visitor market continues strong as the value of the dollar makes the U.S. a travel bargain.”
Overall, while national and New England economies are slowing and consumer confidence is slipping amid complaints about gasoline prices, much of Cape Cod is faring about as well as last year.
Paul McBride, executive vice president of the five Red Jacket Resorts on Cape Cod, said reservations were down four percent up to Memorial Day, but took a big jump after that. “If the weather is gracious to us, the Cape will do just fine. There are lots of signs of optimism. We had a good spring in relation to the weather. Memorial Day was excellent; 75-degree weather had something to do it. So, I see a lot of optimism.”
Homebuilding and remodeling
For many homebuilders and remodelers, the housing slowdown means shorter order backlogs. Instead of a 12-month book of orders, some contractors report a six- month wait for major home improvement projects.
At All-Cape Maytag Appliance Center in South Yarmouth, owner Rick Capobianco said sales are up 7 percent, while appliance service has dropped off. “I’ve been doing this for 36 years, and I always said I have recession-proofed my business. When a recession was going on, my service business was way up. When the economy was great, my sales were way up.
“It’s quite the opposite this year than what you would expect. People are holding back, but they’re are still replacing appliances rather than servicing them.”
As for the remainder of the year, a slow growth economy is forecast, with no sight of recession. According to Dr. Barrow, “It’s not uncommon for you to get these kinds of slowdowns and then a snap back in growth, but it could just as easily be followed by recession. I wouldn’t even try to think past six months right now.”
Joseph Santangelo Joseph Santangelo has been a statehouse bureau chief, a corporate executive and currently works for the Connecticut Legislature. 
Cape Business Newsletters
Keep up with the latest issues affecting your business and your life! To sign up for any of the Cape Business newsletters, click here.