Auto Sales in Free Fall

The Commerce Department reported retail sales fell 0.1 percent in July, the first overall decline in five months, with the 2.4 percent plunge in automobile sales the primary reason for the poor performance.

Auto sales have now fallen 10.5 percent on a year-over-year basis, the steepest decline in almost six years, as consumers weigh the impact of higher gasoline costs and tighter credit during a period of uncertainty for the economy. Last month was the weakest month for Detroit motor vehicle sales in 16 years.

Excluding autos, retail sales rose 0.4 percent, also the worst reading since February, with most of this increase coming from higher gasoline station sales.

On a year-over-year basis, retail sales have now risen just 2.6 percent, a figure that is not adjusted for inflation, and, here too, the bulk of the gain can be attributed to rising fuel costs. Stripping out gasoline station sales, up 24 percent over the last year, retail sales show annual gains of just 0.2 percent.

Gasoline station sales rose 0.8 percent in July as the amount of fuel purchased (in volume terms) again declined, however, with prices now falling, this trend is likely to reverse next month.

The effects of $92 billion in government rebate checks, distributed mostly in May and June with a tiny portion sent out in July, have clearly worn off, though most believe that only about ten percent of this money went to discretionary purchases, the vast majority of the money going to servicing existing debt or into savings.

Since personal consumption accounts for more than two-thirds of all U.S. economic activity, estimates for third quarter economic growth will likely be revised lower as forecasts for overall declines in consumer spending during the quarter are now commonplace.

Round 2 of the government stimulus effort should begin in earnest when Congress returns to Washington next month.

Comments

[Paul Killinger:]

"Round 2" of ANY Congressional stimulus package (or anything else they may do for that matter) will be dependent on the Democratic leadership's willingness to compromise on increased domestic exploration for oil and gas. Without that, NOTHING will get done.

You can say you heard it here first, if you like.

2008 Aug 14 09:07 AM

[Paul Killinger:]

But, buck up. Lower fuel prices will buoy the economy, and mean additional sales for automakers, as well.

2008 Aug 14 09:10 AM