Car-driven GDP growth | FT Alphaville

Car-driven GDP growth

Our US econo-stat of the day:

Vehicle purchases by consumers alone accounted for 30% of all the GDP growth in the last two quarters.

And also consider this:

Motor vehicle output is less than 3% of GDP. But its standard deviation is more than nine times the overall GDP’s standard deviation. So in the world of growth rates, the auto sector will tend to punch well above its weight in expansions (and well below during recessions).

That’s from Credit Suisse economists, who add that the prevalent worry (though it’s not theirs) with the recent pickup in auto sales is that it isn’t sustainable given the recent decline in the savings rate.

There was similar concern about consumption generally throughout the second half of last year, as spending climbed more rapidly than incomes — but we just needed to wait a little while for the data to be revised. After the revisions, it turned out that incomes were simply higher than we’d thought all along, as was the savings rate. Something similar might happen again; who knows.

But there are other reasons to be hopeful (with the usual caveats) that the trend in motor vehicle purchases will continue. Even now, we remain well below the average annualised pace of buying in the last decade, and only recently did the pace climb above the replacement rate after an extended period below it.

Translation: still lots of ageing cars out there that will soon need to be junked and replaced…

Vehicle sales averaged 16.6mn during the 2000s business expansion and plunged to the 9 million unit zone at the low point of the Great Recession in February 2009.

From the period beginning in the summer 2009 through summer 2011, sales recovered in haphazard fashion, struggling to exceed the “replacement rate” – roughly 13.0 million units at an annual rate – with any consistency (the “cash-for-clunkers” program of August 2009 provided a short-lived respite, but was rapidly “paid for” by weaker sales in subsequent months).

Sales broke into new “lofty” (by recent standards) territory recently, averaging 14.5mn units in the first quarter of 2012, after a 13.5mn average pace in the fourth quarter of 2011. The first quarter sturdiness looks particularly impressive as demand accelerated right into the teeth of a surge in gasoline prices.

The economists note that some of the first-quarter gains might be down to the mild winter, but the subsequent “correction” won’t be nearly enough to offset the underlying trend.

And as for how big a chunk cars are now taking out of personal income…

Exhibit 3 shows consumer spending on motor vehicles and parts as a percentage of disposable personal income (DPI) going back to 1960. Recession periods are shaded. During the Great Recession, this ratio plunged to historic lows – about 2.1%. It has since regained some of the lost ground, moving up to 2.7%. But even with the recent rebound, the ratio is only getting back to the previous worst levels of the last half century – the recession trough of the early 1980s. And the current level still stands considerably below its long-term average of 3.5%.

Related links:
Pent-up demand, charted – FT Alphaville
US auto assemblies have gone parabolic – Modeled Behavior
US consumer: not so “unsustainable” now, am I? – FT Alphaville