Recessionary Fears: It's Not Just Housing Any More

Not a good start to the week week for those holding on to hopes that the U.S. will avoid a recession.

Start with autos. Every sales category was down-- imports or domestic, cars or light trucks-- relative to February 2007. But the sharpest drops were seen by domestic light trucks, a category that includes the SUVs and still accounts for more than half the number of light vehicles sold. Domestic light truck sales last month were down 12.4% compared with February 2007. The graph below records the sales for each month over the last 5 years so that you can simultaneously see both the seasonals and trends. To make year-over-year comparisons, look across the adjacent columns for any given month. The most recent drop looks like a significant deterioration.

Data source: Wardsauto.com

Perhaps Detroit's woes are related, and perhaps not, to an apparent recent break in the behavior of U.S. gasoline demand commented on by the Wall Street Journal on Monday. Apart from the effects of the 2005 hurricanes, U.S. gasoline consumption has remained remarkably resilient to the steady increase in price over the last several years. Although there is a lot of noise in the weekly series, the most recent four-week average is running 1.1% below that for the same period last year:

U.S. finished motor gasoline product supplied, 4-week averages, in thousands of barrels per day. Most recent year in red, previous year in blue. Data source: EIA

Taken together, the auto and gasoline data may signal that American consumers are finally starting to adapt their behavior to record crude oil prices. If so, given historical patterns, it's likely also showing up in cutbacks in a number of other categories as well. Or perhaps it's not the price of gasoline so much as loss of income and worries about the economy that are bringing both car sales and gasoline purchases down. In either case, it does not bode at all well for an economy that is struggling to avoid a recession.

Also on Monday we learned that the Institute for Supply Management's PMI index fell from 50.7 in January (indicating that manufacturing was still expanding at that time) to 48.3 (meaning that more plant managers are reporting decreases than are reporting increases in key categories). Slipping below 50 is a pretty good indicator that manufacturing is at least experiencing a slowdown.

Source: FRED

And if that's not enough good cheer for you in one day's news, growth in nonresidential construction, which had previously remained positive even as residential housing was battered so badly, slipped into the red in January. Here's what Calculated Risk thinks of that development:

Over the last couple of years, as residential spending has declined, nonresidential has been very strong. This is additional evidence-- along with the Fed's Loan Officer Survey and other data-- that suggests the slowdown in nonresidential spending is here.

We'll be watching the BLS employment numbers on Friday to see if the bears can make a clean sweep for the week.

Comments

[unimpressedpragmatist]

Stop the dancing and get with the program. The ultimate cause of inflation, today, is the horrendously high price of oil! Just about everything in the Consumer Price Index is predicated, directly or indirectly, on the price of oil – food, heating, transportation, manufacturing, construction, and others. If oil should, magically, drop to below $90, inflation would stabilize and begin to inch downward. If it fell to below $80, the economic engine of the nation would begin to heat up, and, any lower, it would roar!

The greed of speculators along with the compliance of politicians in government is keeping the price of oil at an all time high. As long as these two groups continue to profit, inflation will continue to rise with oil and the economy will continue to slow and falter. Very simple and easy to grasp. The man on the street knows this, why don’t you analysts get your heads out of your nether regions and compute reality? Or, are you part of the problem?

[Johnc]

While I agree with the comment that high oil prices will feed into inflation pressure in almost all the CPI components, I am not sure greedy speculators or compliant politicians can have a change of heart and drive oil below $80 given the weak dollar policy and the still strong demand for energy from emerging markets like India and China.
If oil were to "magically" drop to $90 and $80 in the short term, I would take that as a sign that the US recession had spread more quickly to the rest of the world than anyone could have anticipated. Since US exports are one of the current bright spots of the US economy, I am not sure that "the economic engine of the nation would begin to heat up..." as a result. I feel the pain every time I fill up and understand how people less fortunate than me have to be suffering greatly but the logic of the comment doesn't hold up at this time.
The FED medicine for this credit crunch has weak dollar, higher inflation side effects that will take a long time to shake off. As we learned in the 70s, inflation is a very heavy and cruel tax on the lower and middle classes. The Treasury and the FED should know better.

[NI123]

pragmatist: The ultimate cause(s) of inflation today the increase in the price of everything due to two things: Global inflation of the money supply and Chindia. Don't blame the speculators, they are only doing what they do best: finding the fair market value of their commodities.