Baby You Can Drive My Car Because You Don’t Have One
Looks like it is official: The consumer purchasing frenzy is slowing down and one of the biggest victims is auto sales.
According to Yahoo News, after eight years of strong sales, auto lending is slowing down as missed payments rise. That’s partly because subprime loans to people with credit scores 600 and below are booming, as Business Insider’s Frank Chaparro recently detailed.
This big-ticket item is one reason to be worried about the lending slowdown, especially with concerns that the industry has plateaued after seven straight years of growth.
The spillover effect from falling retail sales in March was worsened by a 1.2% drop in auto dealership sales — the third straight monthly drop in auto sales. And since cars need gas, this translated into a 1% drop in gasoline sales, and a 1.5% drop in people buying building materials.
According to David Rosenberg, Gluskin Sheff’s chief economist, new auto loans fell 17% at JPMorgan and 29% at Wells Fargo year-on-year in the first quarter. One reason: big banks that make car loans are tightening loan standards as missed payments increase, as are the number of car repossessions.
In related news, household debt is on the rise and U.S. retail sales fell for a second straight month in March, another sign that consumer spending has weakened so far in 2017. This weakness happened despite the healthy labor market.
More bad news is that household debt rose in the first quarter of 2017 to $12.73 trillion, exceeding its peak in the third quarter of 2008. Student loans account for 10.6 percent of that total, up from 3.3 percent in 2003, while housing’s share, though still great, has fallen back to 2003 levels, according to data from the Federal Reserve Bank of New York.
And more bad news from the Commerce Department which said retail sales declined 0.3% in February and 0.2% in March 2017, which was above the expected 0.1% drop economists predicted. Coming on the heels of February’s revised 0.3% drop. This was the worst two month sales drop in two years.
On the positive news side (a rarity these days), the unemployment figures for April 2017 found that 211,000 more jobs were created as the unemployment rate ticked down to 4.4%, the lowest level since May 2007. Average hourly earnings increased 2.6% in March. A government report last week showed private sector wages recorded their biggest gain in 10 years in the first quarter, but the pace of wage growth is still anemic and it is not anywhere close to closing the wage gap or the income gap.
Short-Term vs. Long-Term Economic News
So what do all these numbers mean?
For the average American, not much.
That’s because economic news is usually based on short-term data changes (monthly or quarterly), but individuals gauge their household net worth creation over decades. If individuals look towards the long term, such as saving for retirement or buying a house, the picture is much darker.
The latest news is that increases in health care costs and taxes for the middle class will all increase in the Trump-Republican administration. After all who else is going to pay for the tax cuts to the wealthy and a military buildup?
The other problem is that corporations are planning to reduce their pension plans due to changes in accounting rules and premiums paid to the Pension Benefit Guaranty Corporation. This is the topic of the next story, but this basically means the costs of individual health care will rise, or definitely become more uncertain. Medical bankruptcies will rise as people cannot afford to pay for major medical expenses. Planning for the financial future will become much more difficult for average Americans, especially Millennials, who, for the most part, are not equipped to manage investment over remaining decades of their working careers.
Then, if they are lucky enough to have jobs with pension plans, Mercer consulting estimates that within the next five years or so, many of those plans will be phased out and replaced with annuities or lump sum payments. This transition from pension to annuities or lump sum distributions will greatly benefit the financial services and insurance industries more than individuals. As we discussed on this site many times before, this demonstrates that there is a pot of gold at the end of the lobbying rainbow for the financial services industry, which is the largest and most active in Washington. The main focus of this lobby is to advance all anti-individual investor bills or regulations.
So if you are a Millennial, or a younger worker, you will face more financial and career risks than any other generation in U.S. history. You are the uber-generation for retirement and health care. There is no sense of corporate responsibility to workers (and in too many cases the environment) under the neo-liberal, conservative capitalism. After all, as the economist Milton Friedman insisted, the only purpose of any corporation is to appease shareholders, and by that he did not mean the poor mope who owns shares in their 401(k) (you lost those voting rights anyway if you read the fine print in your enrollment papers.)
So even if you work for someone else, act as if your future only depends on your own actions. No employer cares about you after your labor is no longer needed. Or, as they say in the movies, “Don’t let the door hit you in the ass on the way out.”