Wednesday, January 13, 2010

Autos & Debt

The Lehmann Letter ©

The Bureau of Economic Analysis and the Federal Reserve have released their December and November figures for new-vehicle sales and consumer credit.

You can find new-vehicle sales data at . Scroll down to the “Motor vehicles” link and go to table six of the spreadsheet. You’ll see that new-vehicle sales were 11.2 million in December.

Now compare that to the historical data in the following chart. There’s been a gradual recovery from the 9.2 million low of last April, but it’s been a slow ascent. New-vehicle sales remain at lows not seen since the 1981-82 recession and earlier slumps.

New-vehicle Sales

Click on chart to enlarge.)

Recessions shaded

Meanwhile, consumer credit fell $210 billion in November. You can view the report at . (This is revolving credit such as auto loans and credit cards and does not include mortgage credit.) The following chart reveals the unprecedented extent to which households have been repaying their debts. [Negative borrowing (a drop in consumer credit outstanding) = Loan repayment.]. There has been no period in the past when households repaid their debts at such a furious pace.

Consumer Credit

(Click on chart to enlarge.)

Recessions shaded

It’s hard to imagine the economy enjoying a robust recovery without a strong rally in the automobile industry. But it’s hard to see how that can happen while households are busy repaying their debts. Auto loans and auto purchases go hand in hand.

Now households are trying to get their balance sheets in order: Reduce debt and boost liquidity. That’s incompatible with the scale of new borrowing required to pull new-vehicle sales out of the ditch.

(The charts were taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2010 Michael B. Lehmann

1 comment:

zulzie said...

i read your book "how to use the wall street journal" way back in the 80' was (and is) the most important economics book i've ever read......that sounds extreme....but i think you hit the nail on the head by examining the business cycle with respect to fed monetary policy....this is a THE quintessential problem in macro economics.....and one that has....sadly....been &^%$ed up immensely since the fed has been created...your final chapter is esp. poignant in light of recent events.....kudos to you and your book.......