"My pappy said 'Son, you're gonna drive me to drinkin' if you don't stop drivin' that hot rod Lincoln.'"
—Charley Ryan, 1958
Automobiles have loomed large in the American experience since Henry Ford's Tin Lizzie—the fabled Model T—first rolled off the assembly line in 1908. Back in the 1940s and 1950s, a favorite pastime of American youth was hot-rodding (or so I've been told by my much, much older siblings). Cars have inspired countless songs, including Charley Ryan's "Hot Rod Lincoln" and "Beep, Beep," a tempo-changing ditty from 1958 about a Nash Rambler and a Cadillac. And in the 1973 movie American Graffiti, who can forget the iconic 1932 Deuce Coupe driven by John Milner or Toad's 1958 Impala? It was all about the cars!
And it appears consumers feel pretty much the same way. The one shining star throughout this recovery in the wake of the Great Recession has been the growth in unit sales of motor vehicles. I think it's safe to say that folks are buying new rides; it's just that simple. Although retail sales have been growing modestly, motor vehicle sales have been one of the driving forces (OK, yes—pun intended) behind the upward movement seen overall.
Light vehicle sales continued rising in June, reaching a postrecession high of 16.9 million units (the seasonally adjusted annual rate; see the chart).
This growth can also been seen when looking at consumer credit outstanding. Consumer credit is debt that a consumer enters into with the intent of making an immediate purchase. There are two types of consumer credit: revolving and nonrevolving. Let's look for a moment at nonrevolving credit, which is defined as an installment loan in which the amount borrowed (plus interest) is repaid at set intervals for the life of the loan. As the chart below shows, nonrevolving credit has been growing over roughly the same period as vehicle sales, which is not surprising when you consider that vehicle loans account for roughly 40 percent of this type of credit.
According to the U.S. Census Bureau, automobile sales declined 0.2 percent in June. However, a year-over-year comparison shows that vehicle sales increased 7.0 percent (see the chart). The consensus among our regional auto dealer contacts have indicated they've seen a steady increase in year-to-date sales and are expecting "sales for the remainder of the year to be fairly robust."
Historically, auto sales fluctuate quite a bit. But as you can see, the chart above supports the claim that vehicle sales have shown strong growth compared with total retail sales since the end of the recession. These data provide insight into consumer spending trends. Although this is just one data series in a long list of economic indicators we follow, I think it's fair to say this one gives a better understanding of consumer behavior.
So we'll keep our eye on this indicator. And remember, "Beep-beep, beep-beep. His horn went beep-beep-beep."
By Chris Viets, a REIN analyst in the Atlanta Fed's Jacksonville Branch