October 2, 2019
Unit car and truck sales rose 1.1% in September to a 17.188 million pace after having climbed 0.8% in August. During the last year car sales have declined 0.7%. Car sales have been basically flat for the past couple of years and should continue to be relatively flat for the foreseeable future.
Consumer sentiment got hit in August as trade fears and the possibility of a recession increased,, but the alternative measure of consumer confidence remains at a lofty level Whichever measure is correct, is appears that consumer spending will climb at about a 2.5% pace for the rest of this year and into 2020.
Confidence will remain solid simply because the economy continues to crank out 160 thousand jobs per month. Steady growth in jobs means continuing growth in income. At 3.7% the unemployment rate is essentially at a 50-year low so almost everyone who wants a job has one.
Driven by the steady jobs gains, real disposable consumer income (what is left after taxes and inflation) is rising at a solid 3.0% pace.
Meanwhile, consumers have paid down tons of debt and are now in a position to spend. At the same time, mortgage rates have fallen 1.3% to 3.6% in the past couple of months. For all of these reasons we look for 2.5% GDP growth in 2019 after a 2.5% increase in 2018, and for continued growth of 2.4% in 2020. Thus, the consumer is in good shape to continue to spend at a brisk pace in 2019.
However, the reality is that many Americans, particularly younger Americans, are less enamored with owning a car than their parents. Ones who live in larger cities have chosen not to own a car but to use ride-sharing services like Uber or Lyft. At the same time Americans preferences have shifted away from sedans to SUV’s of varying sizes. The car manufacturers are only now beginning to adjust production towards the different mix of cars being sold. Thus, we expect car sales to remain fairly steady at roughly their current pace in the months ahead.