September 03, 2010
August auto sales
August auto sales worst in 27 years, declared some headlines. While the statement may be true, I don't think it's the best way to summarize what we're seeing.
The graph below is my preferred way to view the auto sales data; as far as I'm aware Econbrowser remains the only place on the web you'll find auto sales data displayed this way. The graph allows you to compare each month with the same month in previous years (by looking at different colors within each group) or different months in the same year (by looking at the same color across groups). These numbers are not seasonally adjusted, and it's true there are strong seasonals in auto sales. But there are often big outliers as well (such as the cash-for-clunkers effect for August and part of July last year) that can throw standard seasonal-adjustment filters out of whack but are pretty easy to see visually in a plot like this.
And what you see in the data is that, although seasonally unadjusted auto sales for August 2010 were 5% below July 2010 and 21% below August 2009, they really don't describe anything very different from what we've been seeing for the last six months. And that is a level of sales that's 8% above the average for the same six months over 2009, but 30% below the average for March-August over 2005-2007.
So the story for autos remains pretty much what it has been for some time-- we've bounced off the bottom, but remain stuck at a point far below what would normally be expected. Double dip? Not here, not yet. Disappointingly sluggish growth? Very much so.
Posted by James Hamilton at September 3, 2010 05:33 AMdigg this | reddit
Good time for another Cash-4-Clunkers. Worked great last time to pump up sales so how about another round of direct consumer stimulus, like we should have been doing all along?
Posted by: Paul at September 3, 2010 07:13 AM
Another way of looking at the impact of the cash-for-clunkers is that it eliminated the overhang of excess inventories. This lead to
auto output rebounding from around 4.4 million light vehicles in the first half of 2009 to 7.4 million in the first half of 2010-- a 68% increase.
This played a major role in what economic recovery we have had. In the third quarter of 2009, for example, auto output accounted for 0.8 percentage points of the 1.6% gain in real GDP.
Posted by: spencer at September 3, 2010 07:57 AM
Good chart. I'll still take the under, maybe the way under, given that we're expecting hurricane Earl to hit here in Cape Cod in the next few hours.
Posted by: Steven Kopits at September 3, 2010 08:16 AM
The larger context for auto sales (and the auto- and oil-based, suburban-exurban, mall-sprawl e-CON-omy) is that we are in an epochal "regime change" because of the global peak production of oil and falling net energy.
Although the overwhelming majority of Americans are unaware of the fact, per-capita (PC) US domestic oil production has declined 2.5-3.3%/year from 1970 and 1985 to date. We now import around 60% of total liquid fossil fuel consumption, whereas China is now at around 50% and rising; and this is occurring with global peak oil production having occurred in 2005-08.
PC oil consumption correlates very highly with PC private GDP (PGDP), and the US (and especially China-Asia) faces an inexorable decline hereafter in PC oil consumption and PGDP, which in turn implies a permanent downward trend of auto sales and the decline in the high-multiplier secondary and tertiary sectors associated with autos, including housing, appliances, furnishings, and related services.
As such, the composition of US household spending will shift from high-GDP-multiplier outlays for housing, autos, durables, child rearing, etc., to low-multiplier spending on property taxes, house maintenance, insurance premia, deductibles, co-insurance, and co-payments, and out-of-pocket costs for medical services and medications.
Growth-related sectors of the post-WW II period, and particularly since the 1980s, such as housing, financial services, travel, causal dining, and consumer durables and discretionary items will contract at an average rate proportional to the population growth deceleration, Boomer drawdown of financial assets, decline in PC oil/energy consumption and production, and contraction in bank lending, gov't receipts, and eventual cuts in gov't services, pension payouts, and benefits.
The largest share of the incremental growth of gov't spending over the next decade and beyond will be for elder transfers (Social Security, Medicare, Supplemental Security Insurance, etc.), unemployment payments, food stamps, housing assistance, and so on. The loss of gov't receipts and increasing fiscal constraints from deficits/GDP of 10% will severely restrain or prevent much in the form of Keynesian "stimulus" hereafter.
Keynesian "stimulus" will do little more than pull forward private consumption, investment, and production that will already have been occurring at a historically low trend rate, and it will do so at the increasing risk of future US gov't insolvency.
Keynesianism is an artifact of debt-based growth and monetization of future energy stores at an unsustainable rate of consumption of those stores. Now that the structural effects of Peak Oil ("limits to growth") and Boomer demographic drag effects are bearing down on us, growth of any kind for the private sector (and by extension PC PGDP growth with a growing population) is not possible.
Thus, no tweaking of conventional theories or the latest dubious politician's scheme will achieve "growth"; therefore, we must devise ways to adapt to sustaining well-being as we enter a permanent regime of first contraction and eventually no growth at a much lower level of material standard of consumption.
Posted by: Nemesis at September 3, 2010 08:34 AM
Why couldn't natural gas, nuclear power and "clean" coal provide solutions to the decline in oil supply? T. Boone Pickens suggests that "big-rig" trucks can operate on natural gas, which would free-up petroleum for other energy needs. It is also my understanding that the USA has an abundant supply of natural gas and coal. France and Japan use nuclear power extensively. Also, I have read that nuclear waste can be manufactured into glass, which will not leach into water supplies and can be buried deep in "played-out" mines.
Posted by: AS at September 3, 2010 11:35 AM
'"Thus, no tweaking of conventional theories or the latest dubious politician's scheme will achieve "growth"'
History shows that starving the peasants ends well.
Posted by: red at September 3, 2010 12:11 PM
AS, look here (assuming our hosts will permit the links to be shared):
Posted by: Nemesis at September 3, 2010 01:45 PM
red, you'll recall that revolutions don't begin from the bottom up; rather, it is when a large enough plurality of the professional middle-class households (avg. income of $140,000-$250,000 and net wealth of ~$1M-$2.5M in the US today) lose faith in the elites that the existing order breaks down and the middle-class revolutionary impulse occurs and is sustained, spreading downward to the working-class masses (whom most Americans incorrectly refer to as the middle class).
The "true believers" (in "imperial democracy", "free markets", "free trade", "big gov't", central banks, etc.) among the middle-class intellectuals, especially those well-established types in media, academe, the arts and entertainment, gov't, and Wall St., will be the most incredulous, if not hostile, to the talk of "revolution" and the like; they have the most to lose from the system imploding and their rentier-oligarch masters and disruptively revolutionary peers abandoning them to face the working-class mob's rage and vengeful justice.
When enough physicians, attorneys, successful small businesspersons, engineers, nurses, university professors and administrators, and the like turn against Wall St., "elections" and the one-party corporate-state in DC, big gov't and more debt as the solution to all challenges, and the imperial military enterprise, invest in pitchforks, torches, wheelborrows, and rope, because the revolution won't be far off.
Posted by: Nemesis at September 3, 2010 01:56 PM
According the BLS website PPI for automotive parts (viewed as commodities) is basically flat and has been since the recession; but the PPI for automotive businesses has been extremely volatile over the last year and especially over the last 6 months. I'm not sure what theory can reconcile these two very different looks at the automotive business. Maybe people are holding onto their old clunkers longer and this is driving spits and sputters in demand for automotive services as people go back and forth over whether or not to replace Old Reliable???
Posted by: 2slugbaits at September 3, 2010 04:26 PM
JDH, "but remain stuck at a point far below what would normally be expected"
Not so sure that's true. Back when GM was in the news a lot they said their "new normal" projection of US market size went from 15 million units a year down to 12 million.
Posted by: Cedric Regula at September 3, 2010 04:27 PM
I wonder how long it will be before the title "light vehicle sales" becomes outmoded.
The U.S. consumer needs to change his ways, or have them changed for him. But like a spoiled brat, he refuses to allow pigou taxes on his favorite vices.
Posted by: don at September 3, 2010 07:40 PM
Another round of C4C strikes me as a poor use of scarce resources.
"‘Clunkers,’ a classic government folly" by Jeff Jacoby in The Boston Globe on September 1, 2010
Posted by: Walter Sobchak at September 3, 2010 08:48 PM
Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy.
Shift wealth from the poor to the rich : at least that aim was reached by the leading oligarchy.
Good article by Jacoby, Boston Globe 9/1/10.
Posted by: Johannes at September 4, 2010 05:23 AM
Kudos to Nemesis for pointing out the obvious to the nickel seats... America and other "Western" economies, addicted to mortgaged expansion now have to pay the piper .
I would also interject, that the time we have to suffer in the recessive hell is proportional to our aversion to dealing with these problems:
- Forcing banks (and bond holders) to face-up to their losses.
- Eliminate political control of energy supply by legacy oil and coal interests, as well as bureaucratic meddling by national security wonks.
- Re-erect walls to prevent predatory investment banking from gutting the thrift and commercial banking sector.
- Restore realistic and conservative leverage ratios to commercial banks.
Posted by: Anonymous at September 4, 2010 10:59 AM
No offense to you, it is a good chart. But I absolutely detest volume data in all their forms when they don't also report price sold. What does a "units sold" chart tell us vs prior years without a gross dollar sales comp? What if there is major discounting or fleet sales? Or the unit mix changes to stripped down camries etc? I looked today and I can lease a Camry for $80/month and $2500 down. That's a "car sold". I remember 15 years ago falling off my chair when Jetta was offering leases for $200/month.
Hotels use Revpar, new home sales we see median price, but for some reason everyone tracks car sales and NFP like it matters - when it's NOT the story! If manufacturing workers making $60/hour get fired, then rehired as burger flippers, the stats count it as a wash. It's not a wash - GNP drops 70-80%. If a car gets sold for $35,000 in 2005 it's counted identically to a car sold for $15,000 today. It's not identical, in fact sales are down 60%. I really wish you and other bloggers would start complaining a bit more about the quality of the information, or stop trying to infer anything from it when it's incomplete.
Or maybe you can show us a chart of gross revenue per month by year. That would be interesting.
Posted by: Bruce at September 5, 2010 08:16 PM
Thank you Bruce, for bringing this up. I totally agree. Should've put the price data or the gross revenue per month. I have a question, though, with all the report saying the economy is better now do you believe this for a fact? I believe, a lot of companies had done cost-cutting and layoff for the past years because of the crisis. So, this should also be a point of consideration whether the economy has really improved today. A slight increase within the consumer confidence index triggered a surge in the stock exchange Tuesday morning. A few hours later, when the Federal Reserve's minutes were released, the stock industry dove. Stocks came back to life Wednesday. News about reports showing manufacturing growth in China and the U.S. did the trick. By Friday, most are counting on another stock plunge once the August jobs report is released by the Department of Labor. Traders are probably glad the August rollercoaster ride is over. It was the worst performance within the eighth month the marketplace has had since 2001. Increasing in step with the stock market fluctuations, the Marketplace Unpredictability Directory (VIX), otherwise known as the â€śfear index,â€ť showed its biggest August jump since 2001 at nearly 11 percent.
Posted by: FabC at September 11, 2010 02:21 AM