The U.S. Economy Needs to Kick Its Car Habit
Americans love cars. It would be comforting, though, if the world's largest economy weren't quite so dependent on people buying more of them with borrowed money.
With business investment slumping and a strong dollar damping exports, consumer spending has become the primary driver of growth in the U.S. -- and hence pretty important for the rest of the world, too. Yet the latest retail sales data suggest that spending on goods would have declined significantly in July were it not for a large increase in one area: automobiles.
Albeit a bit extreme, the July performance illustrates a trend. Auto dealers have comprised an outsized share of retail sales growth since the recession hit bottom in mid-2009. Over the three months through July, they accounted for nearly a third of the total increase (excluding volatile gasoline sales) -- second only to nonstore retailers. Here's how that looks:
What’s more, consumers appear to be paying for an increasing portion of those auto purchases with borrowed money. As of June, total household auto debt stood at an estimated $1.1 trillion, according to the Federal Reserve Bank of New York. That's up almost $100 billion from a year earlier, more than double the amount by which auto sales increased in the same period -- a greater credit intensity of sales than at any other point in the current economic expansion. Here’s how that looks:
Perhaps added income from a strong job market will make the debt affordable and allow spending in other categories to rebound, producing the kind of demand that would encourage businesses to invest and broaden growth. In the meantime, though, the prevalence of cars and credit illustrates just how precarious the outlook for the U.S. economy really is.
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