US auto and housing sales remain in depression

Posted on 03 October 2010 with 1 comment from readers

US auto sales are still 27 per cent below pre-recession levels and US housing sales last month were the second lowest on record. And yet the smallest uptick is presently seized upon as a signal that a recovery has arrived.

In truth this is a depression and both US auto and housing sales seem locked in a deep slump. The traction to drag the US economy out of this depression just is not happening. Printing money is pumping up the stock market, not the real economy.

US consumer rules

The US consumer is 70 per cent of the national GDP and these guys just are not borrowing and spending as they used to do. How can they? They still have the debts of the boom to repay, and are saving because they are rightly fearful about the future outlook.

At the moment Wall Street news spinners are putting a gloss on this and hiding the wood with the trees. Consider this typical piece of news wire spin:

‘Sales at Chrysler and Ford rose slightly from August. They fell at General Motors and Honda and were flat at Toyota. Car companies say a recovery is still happening, but it’s not as strong as they had hoped following a terrible 2009′.

This almost sounds like good news until you realize that annualized September sales came in at 11.76 million, hardly changed from 11.47 million in August, and 27 per cent below the 2007 total of 16 million.

Sales of US previously owned homes stood at 4.13 million per annum in August, the second-lowest figure on record, the National Association of Realtors said in Washington. This was greeted as an improvement on the nadir of July.

US housing and auto sales are the backbone of the US consumer economy and that is the backbone of the national economy. You simply cannot talk in terms of a meaningful recovery while figures like this are still being published.

Green shoots or illusions?

Americans are natural optimists and try to see a recovery hidden in every piece of data that is issued. But it just is not happening and why should it? There is an overpowering level of debt wherever you turn.

At some point the US is not going to be able to borrow anymore. Every debtor has an upper limit. That will mean a crisis in the bond market and much higher interest rates with far higher inflation.

For we know the US has no intention of kicking its borrowing habits, so this conclusion is only logical. The attempt to grow out of a depression just is not working. US housing and auto sales prove it.