Friday, June 10, 2011


The Lehmann Letter (SM)

Two reports in the past week illustrate the lukewarm pace of this recovery.

The Commerce Department announced that May new-vehicle sales fell to 11.8 million at a seasonally-adjusted annual rate from 13.1 million in April. This may be due to the effect of the Japanese earthquake and tsunami upon sales and production in this country.

But the slowdown could be due to households' unwillingness to compromise their balance sheets with fewer liquid assets and more debt. After all, the old car may last a little longer or a used car may do just as well.

You can see from the chart that new-vehicle sales were well over 15 million annually for a decade before they collapsed in the recent recession. They must climb back to 15 million or higher before the economy becomes sufficiently robust to return to full employment.

New-Vehicle Sales

(Click on chart to enlarge.)

Recessions shaded

The Federal Reserve announced that April consumer credit grew by $75.6 billion at a seasonally adjusted annual rate. That continues a string of positive reports since the beginning of the year.

But you'll notice that, in the decade prior to the recent recession, consumer credit’s monthly advance was about $100 billion. Balance-sheet concerns now prevent consumers from undertaking the larger debt-levels consistent with strong economic expansion.

Consumer Credit

(Click on chart to enlarge.)

Recessions shaded

These reports are critical in understanding the economy's strength. If new-vehicle sales and growth in consumer credit have reached a plateau, the economy cannot return to full employment. Only by breaking out into the higher ranges of yesteryear can do the economy achieve robust conditions.

(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.)

© 2011 Michael B. Lehmann

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