Wednesday, September 19, 2018

Is Housing Sector Joining Autos In A Slowdown?

Two of the biggest and most solid drivers of the economy over the last several decades have been the housing and automobile manufacturing. New data shows that after three ugly months earlier in the year a small rebound occurred in July. August numbers were expected to see those gains consolidate but the picture was extremely mixed with housing starts spiking 9.2% month over month while permits plunged 5.7% during the same time period. The data highlighted below emphasis just how mixed and cloudy the housing picture has become.
  • The surge in Starts is the best month since January 2018
  • The plunge in Permits is the worst month since Feb 2017
The fact is housing was overbuilt in 2008 with many people owning more than one house. Demographics, as well as the student debt weighing upon many young people, has created a drag on housing. While housing has not again reached the torrid pace we witnessed before the crash, because of super-low mortgage rates, easy financing, and a slew of programs to help first time home-buyers, the housing market has become more elevated than it should be. It is important to note that this has resulted in the premature death of many houses that in the past would have been renovated rather than demolished. Houses that are in areas of weak demand, poorly constructed, or even simply been allowed to fall into disrepair have become victims of the wrecking-ball far before their time. In many ways, a lot of what we are witnessing is the result of misguided housing policies topped off with malinvestment.

Overall It Appears Auto Sales Have Topped
As for the auto sector, while we have not seen a massive amount of information about it recent numbers confirm a malaise is settling over the auto industry. After more than a century-long run, giant automakers like Ford was the first to boldly face the obvious: The demand for traditional cars is beginning to dry up, thanks to the evolving tastes of millennials and baby boomers. Ford announced plans recently to eliminate some of the company’s most well-known cars in North America, including the Fiesta subcompact, Fusion midsize sedan, Taurus large sedan, and the C-Max van. According to Ford’s quarterly earnings statement, this decision has been made following years of declining car sales.

Ford's plan to eliminate selling most of its cars in North America except for two models will allow the company to focus on their “winning portfolio” in the United States, Canada, and Mexico. The Detroit automaker plans to continue manufacturing the Ford Mustang and a new Focus crossover that the company plans to release next year. That vehicle will be assembled in China and imported to the United States. Dropping other models will allow the company to devote more resources to SUVs and trucks which have surged in popularity while consumers lost interest in passenger cars, which no longer have a monopoly on good gas mileage, also their new marketing direction will allow Ford to expand into more electric vehicles bringing 16 battery-powered vehicles to market by 2022.

Circling back around to the intended focus of this article, it is likely jobs will be lost in both these important sectors of the economy in coming months. This will in itself create an economic headwind that affects overall growth. Many trends are expected to feed into the coming slowdown such as smaller housing units and self-driving cars as well as a slew of new car sharing programs. As the auto sector moves into the future we will see a reduction in the number of cars produced in and for America and as most production lines are retooled for new vehicles it is likely more automation and robots will be used. None of this bodes well for those predicting the economy will continue humming along.

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Footnote; Below is the link to a recent article about housing

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