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The Legislation-Litigation Factor in Firearms Forecasting.
Friday, July 12, 2013
Some time in April, the media stopped reporting the record volume of applications for firearms permits, NICS background checks, sales, and shortages. The numbers had jumped late fall 2012 and kept climbing, and it simply wasn’t news, anymore. When we were at the NRA Annual Meeting in Houston early May, the conversations were strong sales, back orders, and production capacity.
Has it been good ol’ fashioned economics of supply and demand or are there other things going on to effect the marketplace?
Guns sales are older than these United States of America. Sales rise. Sales fall. The marketplace for firearms has behaved more or less like other consumer products. New models and custom made, there wasn’t even a U.S. Supreme Court case on the issue of a limitation on civilian sales of any particular model of firearm until 1939 in United States vs. Miller over a fact pattern involving the interstate commerce of a 12-gauge shotgun with a barrel less than 18-inches long.
But then we fast-forward to the 1994 Assault Weapons Ban, and we experienced a rise in sales as customers anticipated a shortage of supply of specific firearms and features. If there was an economist who set out to quantify the multiplier effect of the breath and impact of government-imposed supply limits on the only consumer good protected by the Bill of Rights that research didn’t find the light of day.
From 2004 (when the federal ban expired) to 2012, there were several state restrictions available for economic study, but, it’s the second dry well where you would expect to find research data.
So just how many factors are there impacting consumer purchases of firearms in the past six months?
For one, there are new laws and there are federal and state lawsuits. From the federal government to the town council, there are more new firearms laws and pending bills than at any time in the history of the industry – both expansive and restrictive. The Second Amendment has suddenly sprung to the forefront of a conversation that is influencing permits, lessons, and purchases, again, with the anticipation that there could be a shortage or an inability to purchase a firearm.
And then there is the newest form of legislation to come burbling to the surface in the form of added fees and taxes. There are fees to apply for and renew permits. Fees for fingerprinting and background checks. Sales tax. Added tax. The latest twist making headlines is whether increases and expansions of government taxes and fees could serve as a conduit to reduce sales in markets where bills to restrict sales of specific firearms have languished or failed.
All of which means exactly what for manufacturers?
What this all means is that production forecasting has become one part old model and two parts anyone’s best guess. Traditional manufacturing forecasting inherently involves a bit of a leap of faith, but there are variables one can adjust to average out or isolate or eliminate data abnormalities. It’s numbers and it’s math.
When there is a surge in demand, there is a natural tendency to ramp up to meet demand. Add a C shift. Offer production incentives. Put in an additional line. Even expand into a new facility. But have these current options started to feel like a run on banks, Prohibition, or even the housing bubble?
Inextricably tied to the forecasting metric for manufacturers of firearms is compliance. The variable that another large market state excludes one of your best-selling, fastest-growing firearm models. The variable that the President of the United States issues an Executive Order or that Congress reaches compromise legislation for a new ban. This legislation-litigation factor could mean that the added investment to meet the added demand that is abruptly terminated could equate to negative ROI.
The underbelly of the headlines touting record numbers is the stories of manufacturers and dealers with frozen inventory due to recent legislation in CO, CT, MD, and NY. For some provisions of new legislation the restrictions were immediate; others phased in through July 1. At least one FFL was reported as selling tickets to a fundraiser for legal fees to challenge legislation while giving away product just days before a ban went into effect.
When there are artificial variables impacting the supply-demand chemistry (in this case, multiple government actors with multiple footprints), it can be hazardous to rely strictly upon standard, economic-based forecasting. The current climate for manufacturers is suggesting that the discipline of tried-and-true number crunching may need a little help from a political soothsayer.