Prof. Hamilton notes that car sales are way down for the most part. GM’s North American division has lost $1.2 billion in the second quarter, Ford has seen sales decline 20% with sales of SUVs down 50%.
Now that is bad for GM, Ford and other automotive companies, but Prof. Hamilton also notes that bicycle sales are going way up, and that what this means is that it is another inidicator of a possible recession.
But as I’ve emphasized many times, when such changes occur this suddenly, a drop in car sales and rise in bike sales do not add up to an economic wash. Because productive resources cannot quickly move from one sector to the other, the idled factors formerly devoted to automobile production will magnify the initial shock and can lead the economy into a recession
So, we have high oil/gasoline prices, the hurricanes, the sagging consumer confidence and now sharply declining car sales. And on top of this there seems to be no sign of the Fed slowing its rate of increase for interest rates. I’m thinking that a recession cannot be far off with a situation like this. Oh, and probably just in time for the 2006 elections.
Update: One problem with decision making is that people sometimes become too focused on the bad news. Here is some good news, factor orders rose 2.5% in August. Also there is this article on the declinging crude and gasoline future prices as demand falls.
Oct. 4 (Bloomberg) — Crude oil and gasoline plunged on signs that record prices are curtailing fuel demand as refiners repair units damaged by Hurricanes Katrina and Rita.
“We are starting to see a change in consumer behavior,” said Michael Fitzpatrick, vice president of energy risk management with Fimat USA in New York. “Consumers are cutting back because of high prices, rising interest rates and signs that the housing bubble is ending. Prices have probably begun the long steady process of grinding lower.”
Also, eight of the nine refineries in the Houston area are resuming operations, and the demand for gasoline has declined by an amount even larger than is normal for this time of the year. And heating oil futures even declined, but are still 45% higher than last year.
