August 3, 2019
Unit car and truck sales declined 1.8% in July to a 16.8 million pace after having fallen 1.4% in June. During the last year car sales have declined 0.4%. But the softness in car sales is not the result of an inability of consumers to afford cars.
Consumer confidence got hit late last year but it has recovered all of what it lost and stands at a lofty level which is consistent with consumer spending at about a 2.5% pace this year.
Confidence will remain solid simply because the economy continues to crank out 170 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 3.3% 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 2.7% GDP growth in 2019 after a 2.5% increase in 2018. 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.