Auto sales improved only slightly in May 2018 from more dismal results over the prior few months. Unit and retail sales were projected to be +3.5% year-over-year last month. Almost immediately, these numbers (really just the plus sign) were celebrated as clear evidence that consumers were spending in true boom fashion.
Encouraged by a strong job market and vibrant housing sector, shoppers showed last month that they are shrugging off increasing interest rates and buying new vehicles at a steady clip.
Almost none of that is actually true, except for how you might interpret “steady clip.” The housing market is struggling, largely because labor is. “Strong job market” is nothing more than a reference to the unemployment rate, which now at 3.8% and no wage gains in sight can only further disprove its usefulness (along with Job Openings).
As far as vehicle sales, being up marginally from last May is more concerning than encouraging. The auto sector had by early 2017 already experienced a substantial decline from late 2016. After rebounding in the aftermath(s) of Harvey (and Irma to a lesser extent), auto sales are overall sluggish again no matter the plus sign for May 2018.
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Instead, this plateau in automobiles perfectly coincides with every indication (there are many) displaying a clear downshift in US labor. As shown above, it would be one hell of a big coincidence that auto sales out of nowhere hit a wall in late 2015, the very same time that incomes stopped growing (Real Personal Income excluding Transfer Receipts is essentially flat since October 2015). Two and a half years is pretty conclusive about being stuck like this, precluding any “transitory” phenomenon (other than hurricanes on the upside).
Thus, both together, neither the labor market nor relatedly the auto market is “strong.” This isn’t recession, either, rather it’s worse than that. This is nothing more than the “rising dollar’s” big contribution to the US portion of the global economic landscape – another “L” shaped pattern.
This matters because while it is a limited segment of just the US economy it is further corroboration that there remains a distinct lack of momentum in this current upswing. It can, and will, be characterized as “strong”, “robust”, and every other unambiguously positive qualification, but this wouldn’t be any different than 2014 and 2015. Back then, no matter how much the US economy weakened, and global counterparts collapsed, there was nobody willing to call it like it was.
The Fed was going to raise rates, which they did, embarrassingly enough, during the thick of the downturn, simply because deference to central bankers like the unemployment rate drives the narrative. If either or both of those are off, you get this huge divergence of rhetoric from reality.
It makes a big difference, however, to markets especially funding markets where there is no luxury of being so detached from on-the-ground conditions. That was certainly the case in 2014 and 2015 when no matter how many times the global economy was described glowingly eurodollar participants headed for the exits anyway (back then, it was mere global growth rather than today’s globally synchronized growth).
We aren’t quite at those extremes just yet, but you can see in many markets how things are moving in that direction. The word “strong” continues to be used, but unlike late last year there isn’t as much deference to the word and its commonality. There is, I believe, a growing sense that history is merely repeating itself very closely. That might make anyone a little more nervous, not just about US conditions but more so at the further edges where risk never really disappeared. It was supposed to, the only really strong statement.
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