Wednesday, May 16, 2012

Autos and Housing Divorce

The Lehmann Letter (SM)
Autos and housing once lived in the same world. Now they don’t. They used to move together. Not anymore.

Households can purchase new vehicles with consumer credit, which has rebounded strongly. But it takes mortgage credit on top of a healthy credit score and a sound balance sheet to acquire a new home. That’s a different matter and highlights the peculiar nature of this recovery.

The April reports on industrial production and housing starts, from the Federal Reserve and the Census Bureau, confirms the dichotomy:

Capacity utilization at the nation’s factories, mines and public utilities jumped from 78.4% to 79.2%. Look at the chart and you’ll see we’re swiftly approaching the 80% considered within the normal (80% - 85%) range. Soon we’ll be able to say: Industry is back!

Capacity Utilization

(Click on chart to enlarge)

(Recessions shaded)

But we won’t say that anytime soon for housing. April’s 717000 is a nice bump up from March’s revised 699,000. Look at the chart, however, and you’ll say: Housing is not back yet.

Housing Starts

(Click on chart to enlarge)

(Recessions shaded)

These data reflect market realities: Autos are selling, but homes aren’t moving.

There’s more to industrial production than autos. But new-vehicle sales provide a clue to manufacturing, and they are both gaining.

Too bad the garages are filling up but the homes aren’t.

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© 2012 Michael B. Lehmann

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