U.S. consumers are buying a lot of cars. This might not be a good sign.
April’s strong retail sales report — which has raised hopes for a broader rebound in consumer spending — illustrates how much auto dealers have been punching above their weight: They drove more than half of the month’s growth, even though they account for just a fifth of total retail sales.
The April performance wasn’t an anomaly. Since the economy hit bottom in mid-2009, auto dealers have accounted for almost a third of retail sales growth (excluding volatile gasoline sales). That’s almost double their share of sales at the beginning of the recovery, a bigger ratio of impact to size than in either of the previous two U.S. economic expansions.
Why autos? One explanation is that auto sales were hit so hard in the recession that they are also bouncing back more strongly. Another possibility is a boom in lending. In one ominous sign, the volume of auto loans outstanding — including to buyers with shaky credit — has grown much faster than actual auto sales in the past few years.
If the auto recovery is a bubble, it probably doesn’t present a threat anywhere near comparable to the housing debacle of the 2000s. That said, the credit story would be consistent with the idea, popularized by the economist Larry Summers, that the U.S. has entered a period of persistently weak demand known as secular stagnation. In such an environment — barring more radical measures designed to improve the economy’s longer-term growth potential — creating unsustainable credit bubbles would be the only way to achieve the level of growth to which the U.S. has become accustomed.
