Autos Expose Economy’s Fragility As Credit-Compelled Car Sales Continue To Collapse

Wednesday, August 23, 2017
By Paul Martin

by Danielle DiMartino Booth via,
Aug 23, 2017

The revival of the auto industry drove the factory sector out of recession; the flipside doesn’t look promising.

Federal Reserve data released last week on July industrial production offered little more than more of the same. Despite post-election optimism for a rebound in activity on the nation’s factory floors, the data reveal a continued throttling down in the growth rate to just over 2 percent compared with this time last year.

The main drag on activity — the auto sector — should come as no surprise to investors. Rather than rising by 0.2 percent over June as projected, manufacturing production contracted by 0.1 percent, marking the third decline in five months. Motor vehicles and parts production fell by 3.6 percent on the month, taking the year-over-year slide to five percent.

Evidence continues to build that a sampling error may be to blame for the surprising strength in June and July car sales. Inventory continues to pile up, suggesting more production cuts are in the offing: As of June, the latest data on hand, auto inventories were up 7.4 percent over last year, leaving manufacturers choking for air. In July, General Motors Co. alone was sitting on 104 days of supply, well above its target of 70 days. Industry-wide, the July/August average of 69 days ties the August 2008 record and sits above the historic average of 56 days of supply.

In all, automakers have 3.9 million units of unsold light vehicles, up 324,600 from last August and the highest on record for the month. For context, July and August tie for the leanest stock levels of the year.

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