Today the Office of Federal Housing Enterprise Oversight issued a press release (http://www.ofheo.gov/media/pdf/4q07hpi.pdf) that began:
“U.S. home prices fell in the first quarter of 2008 …… This decline...... is the largest quarterly price decline on record. Over the past year …….. This is the largest decline in the purchase only index’s 17-year history.”
Housing and financial markets have captured most of our attention lately. What about the industrial economy?
Residential construction affects it. Lumber and other building materials, furnaces, air conditioners and water heaters, kitchen and laundry appliance, carpets, furniture and furnishings are all manufactured goods whose health derives from building. Now’s not a good time for these industries.
But automobile sales also play an important manufacturing role. Think of all the steel, glass, upholstery, rubber tires and fuzzy dice that depend on motor-vehicle purchases. How is the passenger-car industry doing?
Here are the latest new-vehicle sales figures in millions from the Department of Commerce at a seasonally adjusted annual rate.
May……………………2007………………16.3
June…………………...2007………………15.6
July……………………2007……………….15.2
August…………….....2007……………….16.2
September……….…2007……………….16.2
October………….….2007………….….…16.0
November……….….2007……………….16.1
December……………2007……………...16.2
January………………2008………….…..15.3
February………..…..2008……………..15.3
March………………...2008…………/…..15.0
April…………………..2008………….…...14.4
You can see the slippage begin with the start of the new year.
Put those figures in perspective by updating the chart below in your mind’s eye.
New-Vehicle Sales
(Click on chart to enlarge)
Recessions shaded
We were averaging around 16 or 17 million new-vehicle sales annually until recently. April 2008 was 14.4 million and the trend is downward.
What impact has this had on industry? Here are figures, provided by the Federal Reserve, that answer the following question, “What is the current level of industrial output expressed as a percentage of the maximum?”
November…….…….2007……………….81.1%
December……………2007………………..81.0%
January………………2008………………..81.0%
February……………..2008………………..80.3%
March………………...2008………………..80.4%
April…………………..2008………………...79.7%
Use those numbers to bring the chart below up to date.
Capacity Utilization
(Click on chart to enlarge)
Recessions shaded
Capacity utilization was hovering around 82%. It’s now below 80%.
If residential construction and new-vehicle sales continue to falter, the industrial economy will, too.
That casts doubt on the notion that the second half of 2008 is due for a bounce.
(The charts were taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)
© 2008 Michael B. Lehmann
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