Friday, 14 of December of 2018

Economics. Explained.  

Car and Truck Sales

December 5, 2018

Unit car and truck sales fell 0.4% in November to a 17.9 million pace in November after having risen 0.3% in October.  A 17.9 million pace is virtually identical to what it was at this time last year.  Car sales have leveled off in the past year or so and auto industry experts think this  modest pace will continue for the rest of this year.  They talk about the fact that the period of ultra-low interest rates has ended.  The Fed is raising short-term interest rates and could boost rates one more time later this year.  They talk about how automobile quality has improved so that consumers are holding onto their vehicles for longer periods of time.  All of those are fair points.  However, we expect car sales to continue to climb slowly for some time to come for a couple of reasons.

First, all measures of consumer confidence are close to their highest levels thus far in the business cycle.

Second, real, disposable consumer income (what is left after taxes and inflation) is rising at a solid pace as jobs growth continues apace, and as the tax cuts began to boost after tax income.

Finally, keep in mind that consumers have paid down tons of debt and are now in a position to spend.  Jobs are climbing at a pace of 190 thousand per month.  The unemployment rate has fallen to a level that is far below the full employment mark.  For all of these reasons we look for  3.1% GDP growth in 2018, 2.8% GDP growth in 2019,  and car sales to remain healthy.

Somehow there seems to be a perception that car sales are “weak”.  That does not seem to be an accurate representation.  We would characterize them as “steady” at a relatively fast pace.  This chatter about weakness seems to have followed G.M.’s announcement that it would lay off 15 thousand people.  But they are doing that because consumers are no longer buying basic sedans like they used to.  They want crossover’s, SUV’s and small trucks.  By closing some of their factories that produce sedans G.M. will free up cash to spend on driver-less cars and electric cars of the future.  It would be a mistake to characterize this announcement as an indication of weakness in car sales.

Stephen Slifer

NumberNomics

Charleston, SC


Leave a comment