Falling U.S. Auto Sales Signaling a Possible U.S. Recession
U.S. auto sales have now declined to their lowest level since October 2014. If you follow gold prices as an indicator of economic health, this is not reflected yet. But auto sales also mean auto loans, and these are about to erupt in a new debt crisis. The American economy has not grown to the same extent as the financial markets. Inevitably, fears that another U.S. recession is at the door are justified.
The signs are clear. The U.S. economy is simply not performing as well as the recent stock market performance suggests. The upcoming recession might be bigger than the last, or it might be smaller. Nonetheless, the current economic dynamic is not sufficiently robust to sustain the valuations on Wall Street.
The main factor that calls for a more pessimistic evaluation of the U.S. economy is a familiar one. “The more things change, the more they stay the same,” is a motto that might have been created for the U.S. economy. Just as in past major recessions and depressions, the culprit is debt.
Meanwhile, President Donald Trump’s expectations of gross domestic product (GDP), a broad measure of economic growth, reaching three percent by the end of 2017 seem overly optimistic. They seem like downright fantasy, given the first-trimester growth of 1.7%. The sluggish growth is not merely a statistic. Many people are feeling the breeze which is warning that the next recession is coming first-hand.
While Wall Street flies to new altitudes, thousands of retail stores are shutting down. Yes, many Americans are choosing to shop online, but they’re doing so because they have less disposable income. Online shopping might be more convenient, but it’s also less social and interesting. Thus, if Americans are choosing to use online shops, it’s because they offer lower prices.
Now that Amazon.com, Inc. (NASDAQ:AMZN) has bought Whole Foods Market, Inc. (NASDAQ:WFM), we can expect grocery shopping to go the way of the book. No more summer or part-time jobs for students at the local supermarket. No more career moves from the fruit section to store management. The world is changing, and economic turmoil becomes inevitable.
If people aren’t shopping as much, it’s because their salaries have become inadequate and more of their disposable incomes goes to pay back debt—or interest on debt. Employment numbers appear good on the surface. We’re told that the current 4.7% unemployment rate is better than expected. In fact, it’s one of the reasons the Federal Reserve plans to continue lifting nominal interest rates over the course of 2017.
Yet, if employment is so high, how come industrial production is falling? Fewer Americans are enjoying restaurant meals, and car manufacturers are going through a rough period. Almost all manufacturers have posted disappointing auto sales, and dealer inventories have reached their highest levels since the last recession. Not enough buyers walking into showrooms translates to fewer people on the factory floor. (Source: “US Automakers To Cut Jobs After Disappointing June Sales,” MarketPulse, July 5, 2017.)
Then there’s the problem of the “subprime” auto loan. Housing loans have become somewhat tighter since the lending practice that fueled the sub-prime crisis that erupted in 2007–2008. But, as many buyers could not secure credit through traditional banks, they have used higher-interest third-party lenders. Defaults have become more frequent, and lenders have become tighter. Thus, even would-be buyers are going to come across bigger obstacles at the dealership. (Source: “Auto Lenders Get a Bit Stingy on Subprime Credit,” Forbes, June 26, 2017.)
That will force used vehicle prices to fall, even as American consumers face ever greater obstacles to their lifestyles. CNN warned that some 60% of Americans cannot come up with $500.00 to deal with an emergency. Debt is growing quickly, as it was in 1929 and 2007. Such is the vulnerability that a major market crash in 2017 is likely, leading to a recession.