Lenders are keeping a sharp eye on the unemployment rate as a predictor of vehicle sales.
For 2006 and 2007, the unemployment rate tracked at a relatively steady 4.6%. Monthly vehicle sales, meanwhile, zigzagged, but largely stayed in the one-million to 1.5-million range. Since the beginning of 2008, though, the two indicators’ tracks have diverged.
This graph plots vehicle sales against the unemployment rate:
Excluding a few hiccups, vehicle sales have effectively plummeted while unemployment has spiked. At the pace that unemployment has been rising, monthly vehicle sales could drop to 430,000 units by 2010. Last month, 688,909 light-duty vehicles were sold in the U.S.
The percentage of people out of work is expected to continue on its current trajectory. The White House predicts an unemployment rate of 8.1% by yearend, and some analysts have forecast a 9% unemployment rate in 2010.
I don’t think vehicle sales will plunge below 450,000 units. In fact, I think they’ll start to creep back up to the 800,000-unit mark by midyear. That would probably put us on track for the two lines to intersect again in about 2012.
Thanks Marcie – this really speaks to consumer confidence and the impact it has on capital spending. Job-secure hard-working Americans buy stuff. My friend says: “profits pay for everything” I hope we are taxed so deeply is doesn’t cause a fourth-wave down-turn. Great graph!
Gary — Thanks for the perspective. I think one thing that’s different between now and 1975 or 1982 is the sheer size of the market. According to data from the Federal Reserve, finance companies owned or managed $11 billion worth of motor vehicle loans at the end of 1975 and $44 billion at the end of 1982. Know what the number was at yearend 2008? $250 billion.
You can check out the latest Fed G.20 report here, and you can pull loads of historical data using the Data Download function here.
Marcie – Remember to account for inflation and the real growth in the economy. A dollar in 1982 is not equivalent to a dollar in 2008. The average nominal GDP growth rate since WWII has been 6.7% (3.2% inflation plus 3.5% real growth). Using this average growth rate, $44 billion of motor vehicle loans in 1982 equates to $238 billion in 2008 (44 x (1.067)^26), not much different than the $250 billion you noted above.
I really do believe that the 24 hour news format of today has a lot to do with the current hysteria over the economy. CNN, Fox News, etc. are competing for your attention. The “D” word (Depression) gets a lot more attention than the “R” word (Recession). I just think that after 30 minutes or so the news of the day is conveyed, after which you start making things up. Remember, I’ve got 24 hours to fill and ratings to increase.
Your point is well-taken, Gary. (In light of those calculations, I’m actually a little surprised that the 2008 number isn’t higher.)
Regarding your thought about the role the media is playing in all this, let me mention an interesting social experiment proposed by Frank Armstrong, president of World Omni Financial Corp.: For the next 60 days, media outlets should report only good news about the economy and prospects for recovery. No doubt, consumers would take heed.
Transparency is a cure for “perceptions”. The auto finance industy simply could ask itself to justify any transaction with rates and fees above those charged to customers with excellent credit and then document the resultant pools of credit to show that they know what they are talking about because they are usually stating that the marginal increase above excellent credit is to pay for the associated incremental risks. Of course, the real answer is that it cannot be justified. Just one more reason why bankers ar perceived as “Untrustworthy”. And,the good bankers are loath to air the dirty laundry. I wonder why not?