A Yellow Light For Detroit

It is eight years since U.S. car and light truck sales hit a record 16.1 million clip. Yet four years into the current expansion, vehicle sales still lag behind their prior peak. And a big reason, says economist Paul D. Ballew of the Federal Reserve Bank of Chicago, is the startling growth of nontraditional households and their adverse impact on purchases of big-ticket items like cars.

From 1970 to 1992, note Ballew and economist Robert H. Schnorbus of the Chicago Fed, as the U.S. added more than 32 million households, the share made up of married couples, with or without children, shrank from 77% to 53%. At the same time, the shares of one-parent and single-person households jumped to 16% and 31%, respectively.

These changes spell increasing income inequality. Over the 1970s and '80s, real median income of U.S. married couples rose 13%, as women flooded into the labor force. Single-parent and single-person households, by contrast, saw little or no income growth, and their median incomes are now less than half of married couples'. (Almost a third of single-parent families and a fifth of single persons live below the poverty line).

The growth of nontraditional households has already begun to exert increasing downward pressure on vehicle sales and other major consumer purchases. In 1992, for example, average outlays for car purchases (new or used) by single parents was only 29% of spending by married couples, while such outlays by single persons were 56% below married-couple levels (chart).

With a third of all American children now born to single women, the economists think the impact of such trends on consumption patterns--and on the entire economy--will intensify in the decades ahead. And though the effect initially may spur demand for economy and used cars, they warn that eventually it could result in a period of sales stagnation.

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