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CHICAGO — The majority of the economy's automotive sector is stuck in an idling position, with many sales categories sitting stagnant and consumers fretting over rising gas prices that surprisingly are more affordable than in years past. William Strauss, senior economist and economic advisor, Federal Reserve Bank of Chicago, reports the automotive sector has not seen much change in the last seven to eight years. "We're probably looking at fairly stable growth," he says. In his presentation "Survival in a Global Economy…Winners and Losers" at the 2007 Global Automotive Aftermarket Symposium, Strauss shared that while these have been the best eight years for light vehicle sales, there has been little, if any, growth. "You have to basically steal the sale," he says. Passenger car sales have been moving higher, but the light truck market really has shown the most growth, moving from one of every three vehicles sold to one of every two vehicles sold. But passenger cars are regaining their momentum, partially due to the energy shock that started in summer 2004 when prices first broached $2 per gallon. Even today, the rising gas prices aren't necessarily unaffordable. For example, in the mid-1980s and early 1990s, oil was around $40 per barrel oil. Strauss explains that if adjusted for inflation, that oil in the mid-1980s was close to $100 a barrel on today's prices. With this in mind, people now are spending less than 6 percent of their consumer dollars on energy goods and services – gasoline as well as gas and electric bills. "If we went back to the 1960s and early 1970s, you can see that percentage share never got down to 6 percent, and we're still at this point well below that," he notes. "We can deal with $3 gasoline today better than people could deal with 30 cent gasoline back in the 1960s. "From a historical perspective, we're still well below the long-term average, which is 6.4 percent. And in the mid-80s, it was well over 9 percent," Strauss continues.
An economy moving on up "So it's getting pretty far along in the expansion and the time when imbalances tend to creep in and we're dealing with one in the housing sector," Strauss reports, adding that for the past four quarters, that quarterly pattern is well below 3 percent. "We are dealing with weakness in economic growth, but mostly with the housing market. "As we go forward with this slower path and what we've experienced so far, we get a number of sectors where things do not gradually downshift," he continues. "Some sectors are still doing quite well and others are struggling." A number of what Strauss describes as "upsey sectors" boost the economy, including income growth, profits, manufacturing and employment gains, which are "nothing less than phenomenal." Just less than 1.9 million jobs have been added during the last 12 months, averaging 156,800 jobs per month. This is good news for the automotive industry, which struggles often to find employees. There also could be more jobs in manufacturing, which never has been higher. "Our value of manufacturing output is $2.2 trillion," Strauss says. "If we took China's GDP for 2005 and adjusted it for the currency, their entire economy is $1.3 trillion. So our manufacturing sector is larger than the entire Chinese economy at this point." As for China, with the automotive aftermarket moving more and more into the Asian manufacturing arena, this is something to keep in mind. In fact, the transition has been pretty much where the Big Three have been sourcing more globally and the new domestics, formerly the transplants, are sourcing more domestically. The changes on this front have been a challenge faced over the last 10 years in a deteriorating trade balance. Strauss notes that there has been a 16 percent increase in the value of the dollar since the beginning of 2002, and combined with export growth that has outperformed import growth for the last two years, the value of trade has shifted. That needs to change back. "This will be a slow process. It took us 10 years to get into the position, it would not surprise me if it took us equally as long to get out of this (pattern)," he furthers. The downside of up "So the question is what's happening here because productivity is our direct link to standards of living," he says. "Our best sense is this is temporary. Part of this is, as I mentioned, the labor markets are very tight. Businesses even with some slack occurring, they continue to hire workers." These employers are afraid if they stop hiring, they will have a hard time later finding workers. They call this labor hoarding and "keeping people on the books that aren't being as productive as they once were, so that lowers productivity." The other "downsey sector" is the struggling housing market, which is the area with the greatest uncertainty. |
