Friday, June 3, 2016

US Auto Sales Indicate An Incoming Recession

Auto sales in the USA are a very efficient indicator of an incoming recession. A few days ago markets were shocked seeing US auto sales dropping 6% in May.

Let us look at the auto market in the long term (the data below does not include the May reading):

                                  source: FRED economic data

Firstly, it is clear that since 2009 auto sales have been going up rapidly. 

On the other hand, since eighties the American consumer has never bought more than around 20 million vehicles a month - in my opinion, it is a permanent feature of a debt-ridden economy. Simply put, any debt-ridden economy grows much slower than a debt-free one (if there is any growth at all).

Now, let me plot the same chart but in a little bit different perspective:

                                 source: FRED economic data

The chart shows a percent change (from a year ago) in auto sales. Red lines indicate periods of slowing sales followed by economic recessions. Every time the auto sales were slowing, the economic recession was only a matter of time.

The chart shows that since February 2011 auto sales have been steadily slowing down. I suppose that after including the May reading the US auto sales may show a negative figure. 

If the pattern drawn by US auto sales repeats we should see a recession. The question is as usual: When?

Final note:
The US stock market seems to be fed by any info (positively). I would not be surprised seeing another rally in stocks. The negative news delivered by auto sales may be read as "No increase in US interest rates".  

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