More drivers needed.

Photographer: Daniel Acker/Bloomberg

The U.S. Economy Needs to Kick Its Car Habit

Mark Whitehouse writes editorials on global economics and finance for Bloomberg View. He covered economics for the Wall Street Journal and served as deputy bureau chief in London. He was previously the founding managing editor of Vedomosti, a Russian-language business daily.
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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:

Driving Sales
Sources: Bloomberg, Census Bureau

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:

Credit Intensity of Auto Sales
Sources: Bloomberg, Federal Reserve Bank of New York, Census Bureau

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.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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Mark Whitehouse at

To contact the editor responsible for this story:
Brooke Sample at