• About

RealityChek

~ So Much Nonsense Out There, So Little Time….

Tag Archives: auto loans

(What’s Left of) Our Economy: Curb Your Enthusiasm Over Those Auto Sales Figures

07 Thursday Jan 2016

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

auto loans, auto sales, demographics, interest rates, recovery, subprime, {What's Left of) Our Economy

As is now doubtless known to even casual followers of business news, 2015 was a record year for automobile and truck sales in the United States. And given how important the automobile industry remains to the American economy, that’s got to be incredibly bullish news, right?

Well, as that rental car commercial says, “Not exactly.” And not just because of worries that too many vehicle buyers have subprime credit ratings, or that loose money overall has simply “pulled forward” much auto buying that would have taken place anyway but over longer periods of time. Another reason to be concerned is that vehicle sales haven’t kept pace with the nation’s population growth.

The final number for 2015 U.S. auto and truck sales was 17.46 million – which broke the record of 17.35 million set in 2000. But in 2000, the American population was 281.4 million. Last year, it was 321.4 million. So since that last auto sales record, 15 years ago, vehicle purchases are up 0.63 percent while the number of Americans rose by 14.21 percent. That doesn’t seem like a killer performance to me.

Of course, not all of today’s U.S. population can buy a vehicle because not everyone’s old enough to drive, much less own a car. Fortunately, the U.S. Census Bureau provides data on the population by age group – although the 2015 breakdown is not available yet. We do have the numbers for 2014, though, and they don’t look especially impressive either.

That year, the number of Americans over 18 years of age hit 245.63 million, and this group bought 16.50 million autos and trucks. In 2000, the 18-and-over population was 209.1 million, and again, they bought 17.35 million vehicles. So the vehicle buyers’ market grew by 17.47 percent from 2000-2014, but vehicle purchases actually fell. And the detailed 2015 population data seem unlikely to change this picture much.

So the bottom line seems to be that, by total sales, 2015 was a good auto sales year in America, but nothing genuinely historic or even close. And given the possibility of more interest rate hikes from the Federal Reserve, a slowing U.S. economy, or both, the industry could be hard-pressed even to match this performance this year.

(What’s Left of) Our Economy: Big New Signs of Re-Bubble-Ization

12 Thursday Nov 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

2016 elections, Allison Schrager, auto loans, balance sheets, Ben Bernanke, Bloomberg, bubbles, bubbles Federal Reserve, credit, credit cards, debt, Financial Crisis, Fox Business Debate, Goldman Sachs, housing, interest rates, leverage, loans, Matt Phillips, mortgages, quantitative easing, Quartz, revolving credit, Tracy Alloway, zero interest rate policy, ZIRP, {What's Left of) Our Economy

One of the more praiseworthy features of the Fox Business Republican debate was the discussion of the last mega-financial crisis and how to prevent a repeat. Although at their debate on CNN the Democratic presidential candidates were quizzed on the bubble and its bursting and possible remedies, the Milwaukee event marked the first time these subjects came up for the Republicans.

Better late than never, but that’s pretty strange given that the last bubbles inflated and the crisis broke out on the GOP’s watch. In fact, it’s downright disturbing. For a new meltdown remains by far the greatest economic threat to America’s future due to the Federal Reserve’s overly easy money policies – despite the latest reassurances from former Fed Chair Ben Bernanke that such warnings are ludicrous. Maybe not so coincidentally, two important new signs of re-bubble-ization have just appeared.

The first was reported by Quartz’s Matt Phillips, who pointed out that the Federal Reserve’s latest figures on Americans’ borrowing behavior showed that consumers in September took out an all-time record $28.9 billion in new loans in September. In the process, they broke a record set 14 years ago, and increased their credit outstanding by the greatest percentage since 1943 – when these records started to be kept. And even if you adjust for inflation, household borrowing is at lofty levels historically.

Many economists view such increases as a bullish economic sign – signaling that Americans are so confident about their future prospects (and repayment potential) that they’re willing to take on more debt. That may be true, but the data on wages and incomes strongly indicate that this confidence is really overconfidence. And if interest rates really are going to be raised by the Federal Reserve, even gradually, this overconfidence may be tomfoolery.

Also not so bullish – the makeup of these new loans. As economist Allison Schrager has sagely pointed out, not all borrowing decisions are created equal, even for individuals with comparable incomes. Some, like student loans, are arguably sensible investments in one’s own human capital and potential (though signs of diminished returns from a college education seem to be popping up everywhere). Others, like mortgages, are arguably sensible investments in an asset that could well appreciate in value (though the inflation and bursting of the housing bubble should have taught everyone that real estate is no longer a sure thing). And still other loans simply finance consumption – which lacks any capacity to increase one’s wealth.

Unfortunately, much of the September surge in consumer borrowing was in auto and credit card debt – which won’t bring any financial benefits.

The second sign of reb-bubble-ization was reported by Bloomberg News’ Tracy Alloway, who covered a Goldman Sachs study showing that leverage levels in Corporate America are at their highest levels in a decade – during the bubble years. In other words, thanks largely to the super-easy monetary policy pursued by the Federal Reserve since the crisis peaked, even though corporate profits have surged to new records, American business has gone on such a frantic shopping spree that its debt load has grown much faster. Indeed, according to Goldman Sachs, these debts are now at twice the levels they hit in the pre-crisis era.

Just as with consumers, rising interest rates could wreak havoc with the balance sheets of U.S. companies. And just as with consumers, relatively little of this borrowing is being devoted to strengthening these firms in what might be called the old-fashioned way – i.e., through the development of new products and services. Instead, much of this new debt has been used to fund mergers and acquisitions, and stock buybacks.

The Fox Business debate, however, does deserve criticism in one sense. It followed an entirely conventional course in focusing on crisis-proofing American finance by improving Wall Street regulation. Certainly such improvement has been warranted. But the financial crisis was rooted in weaknesses in the real economy. Until presidential candidates start presenting realistic plans for fostering more good jobs and the incomes they generate, and for spurring more production and the earnings they generate – which would reduce the need for binge borrowing in the first place – a new financial crisis looks much more like a matter of “when,” not “if.”

(What’s Left of) Our Economy: If You Think U.S. Households are Financially Healthier, Think Again

02 Thursday Oct 2014

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

auto loans, consumers, debt, deleveraging, household finances, housing, mortgages, student loans, {What's Left of) Our Economy

How I wish I’d written Allison Schrager’s new BusinessWeek post on trends in U.S. consumer debt! This economist performs the invaluable service of reminding us that all forms of borrowing decidedly are not created equal, especially when it comes to judging the state of Americans’ household finances and whether it really is improving.

The conventional wisdom has concluded that, by most standard measures – like absolute levels of debt, debt as a share of incomes, and delinquencies on mortgages and other kinds of loans – U.S. consumers on average are financially healthier than they’ve been in many years. But Schrager shows that the mix of U.S. household borrowing is strongly suggesting the opposite.

As she points out, since the recession broke out, and especially since the housing bust reached historic proportions, Americans have been borrowing less to finance purchases that arguably could increase their long-term wealth and financial health, and borrowing more to finance purchases with no conceivable investment value whatever.

Think of it this way, Schrager writes: Although Americans clearly got wildly overoptimistic about mortgages, buying a home has been a good investment throughout most of American history and even today (depending on the actual transaction) at worst could well hold a family’s housing costs stable for decades. In many ways, Americans still seem to be overestimating the economic value of a college education, but most research indicates that, all else equal, college graduates still out-earn their non-graduate peers.

But mortgage debt is coming down steadily, and student loan growth – though enormous – has been pretty constant year on year. These developments have helped slow down the growth of overall consumer credit. But overall borrowing has begun increasing again and today stands at a new all-time high. What gives?

Schrager’s article shows that the increase has been fueled mainly by a resurgence of credit card debt and auto loans. Many of these purchases may be necessary for day-to-day living, she acknowledges. But from a financial standpoint, she notes, such spending goes to assets that can only fall in value.

Continued gushing by the business media and even many economists about how plucky American consumers remain reveals that, even having suffered an historic financial crisis, the nation as a whole still hasn’t learned that all forms of growth aren’t necessarily good. Schrager’s post shows that crucial lessons about consumer de-leveraging are being ignored as well.

Blogs I Follow

  • Current Thoughts on Trade
  • Protecting U.S. Workers
  • Marc to Market
  • Alastair Winter
  • Smaulgld
  • Reclaim the American Dream
  • Mickey Kaus
  • David Stockman's Contra Corner
  • Washington Decoded
  • Upon Closer inspection
  • Keep America At Work
  • Sober Look
  • Credit Writedowns
  • GubbmintCheese
  • VoxEU.org: Recent Articles
  • Michael Pettis' CHINA FINANCIAL MARKETS
  • New Economic Populist
  • George Magnus

(What’s Left Of) Our Economy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Our So-Called Foreign Policy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Im-Politic

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Signs of the Apocalypse

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Brighter Side

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Those Stubborn Facts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Blog at WordPress.com.

Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy