Auto Sales Indicate Economic Depression Taking Hold
Posted by Michael A. Kamperman on May 2, 2009
Auto sales for April were very disappointing and indicate no upturn in economic activity. The WSJ reported “April sales totaled 819,540 cars and light trucks, a decline of 34% from a year earlier, according to market research firm Autodata Corp. The seasonally adjusted, annualized sales pace was 9.32 million vehicles, down from March’s 9.86 million rate.” The ways in which the statistics are reported belie the severity of the situation. The downturn in auto sales has been going on now for over two years. In April of 2007 auto sales in the U.S. declined a worse than expected 8% from a year earlier. In April of 2008 auto sales declined a worse than expected 14% from a year earlier. Now auto sales are down another 34% in April of 2009. The last two years have seen April auto sales drop 8%, followed by a decline of 14%, followed by another decline of 34%. Auto sales in the U.S. are down almost 50% from 2006 levels. The media should be reporting April 2009 auto sales are down 34% from 2008 levels and a total of 48% from 2006 levels.
There is no clear cut definition of what constitutes an economy moving from a recession to a depression. A recession is normally defined as two consecutive quarters of negative GDP. But with no agreed-upon definition as to what is and isn’t a depression, most economists won’t finally call it until well after the fact. I’m ready to call it now. To me vehicle sales in the U.S. clearly signal the U.S. economy has entered a depression and things are not getting better. I would imagine most economists would already concede the housing sector has entered a depression. With the two biggest items consumer’s purchase in a depression, and with the consumer accounting for 70% of the U.S. economy, it won’t be long before more and more economists begin to ask whether or not this is a depression rather than a long or great recession.
The reason semantics matter is because the longer the country believes we are in a more severe downturn of the normal business cycle rather than a debt-induced deflationary depression, the longer it will be before real action is taken to right the economic ship. So far the bulk of the efforts from the Obama administration center on the $786 billion stimulus bill, the $700 billion TARP, the too weak stress tests of the banks, and an effort by the Treasury to resume trading in toxic assets. The Fed has done much, but it remains far behind the curve. Would the Fed have stood still this week if they believed we were officially in a depression? While it is important to instill confidence in consumers and businesses, it is more important to correctly diagnose the economic situation and prescribe the proper remedies. The public will not accept the remedies necessary as long as they remain in the dark about the truth of our economic plight.
