Auto sales numbers have been poor, but the Commerce Department durable goods report says motor vehicles and parts shipments and orders are up.
In a separate report on inventories, the Commerce Department says that for May, the unadjusted retail motor vehicles inventory was -1.0%. However, the seasonally-adjusted inventory number was +1.1%. This is a 2.1 percentage point difference between the adjusted and unadjusted numbers.
Inquiring minds may be wondering if this seasonal adjustment is normal and whether or not there is a bubble in auto inventories.
Let’s address the questions with a look at charts and tables I created from a Census Data Download.
Motor Vehicles and Parts Retail Inventories
Motor Vehicle Sales
Motor Vehicles and Parts Inventories Seasonally-Adjusted and Unadjusted
click on chart for sharper view
The last line in the above table answers the question as to whether or not a two percentage point spread between the seasonally adjusted and unadjusted numbers in May is normal.
Whether the unadjusted number is -6.90%, +0.71% or anywhere in between, the Commerce Department pretty much takes whatever the unadjusted number is and adds 2 percentage points to it to arrive at the adjusted number.
Whether prices and discounts are rising or falling does not seem to matter.
New Car CPI
CPI Used Cars – Percent Change From Year Ago
Change in Private Inventories New and Used Cars
In the fisrt quarter, numbers released just today, the CIPI for new and used cars was -$10.1 billion.
CIPI Autos vs. Overall
Real CIPI Autos vs Overall
Inflation-adjusted, the first-quarter change in real private inventories at new and used car dealers was +27.2 billion vs a Nonfarm total of +7 billion!
Inventory Contribution Second Quarter
Nearly everyone is expecting a huge second quarter rebound in inventories. I fail to see why. That does not mean it won’t happen.
This morning, in New Measures of “Satisfactory”: First Quarter GDP Revised Up to a “Satisfactory” 1.4% I quoted Rick Davis at the Consumer Metrics Institutes as follows:
“It is important to remember that the BEA’s inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.”
GDPNow has CIPI for second quarter adding .69 percentage points.
Given wild jumps in CIPI we can expect anything. CIPI aside, I would have weaker numbers for PCE, residential investment, and nonresidential structures.
Returning to autos, it will take huge discounts to clear existing inventory levels in light of weakening sales and warnings from GM. Price pressures on new cars will in turn impact prices of used cars.
Auto Sales vs. Inventory Build
- June 28: Wholesale and Retail Inventories Rise Led by Autos: Diving Into Seasonal Adjustments
- June 26: GM Says “Market is Definitely Slowing” Lowers Outlook for Vehicle Sales
- June 1: Motor Vehicle Sales Flat, Hope Turns to Second Half: What About Fleet Sales? Incentives?
- May 2: Auto Sales Puke Again: Year-Over-Year Totals: GM -6%, Ford -7.2%, Toyota -4.4%, Fiat-Chrysler -7.0%
- April 3: Auto Sales Final Numbers: Down 5.7%, Two-Year Low; Don’t Worry, It’s Just a Plateau!
Yes, there is a bubble in auto inventories, new and used.
Mike “Mish” Shedlock
FYI, I spoke to a Ford worker at the tire shop last week and he told me the Flat Rock, MI plant (builds Mustangs and Lincolns) is down to 2 shifts and maybe one by the end of summer.
Tony Bennett said:
“Yes, there is a bubble in auto inventories, new and used.”
Absolutely. And HUNDREDS OF THOUSANDS VEHICLES … EVERY MONTH … are coming off lease … FOR YEARS TO COME.
One reason (housing being the other) I think we’ll see a year over year drop in CPI. New and used vehicle pricing makes up 6.4% of CPI index (shelter portion around 33%).
Mr. Market will pay close attention to the June car sales…
Tony Bennett said:
Retail SAAR of 13.1 Million the Lowest for June in Five Years
DETROIT: 26 June 2017 — The new vehicle retail sales pace in June is expected to be lowest for the month since 2012, according to a forecast developed jointly by J.D. Power and LMC Automotive.
Retail sales in June are anticipated to reach 1,168,400 units, a 1.3% decrease compared with June 2016. The seasonally adjusted annualized rate (SAAR) for retail sales is expected to be 13.1 million units, a decrease of 51,000 units from a year ago. Retail sales through the first half of 2017 are projected to be down 1% from last year.
“The auto industry is pacing towards its weakest first half since 2014,” said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power. “While the retail selling rate has declined in four of the first six months, the broader concern remains the negative health indicators behind the sales results.” Total incentive spending in the marketplace has risen to a record $25.2 billion through June, up 11.7% or $2.6 billion from last year. On a per unit basis, spending for the average new vehicle through June was $3,770, up $416 from a year ago. On trucks and SUVs, spending was $3,645 up $484, while on cars, spending was $3,983 up $345.
The CIPI chart shows a growing oscillation. This is typically an indication of instability. Mathematically speaking, the oscillation is due to imaginary portion of roots to a 2nd order differential equation, and the envelope is due to the real portion of the roots being located in the right half plane. Real life systems will eventually either break if they do not realize the instability in time, or decline in a more controlled fashion otherwise. Either way, the total system output (car sales in this case) will decrease.
Reblogged this on World4Justice : NOW! Lobby Forum..
Look at TOTLL on FRED to forecast the next auto sales, numbers pointing down it guides the spread between 10 yrs and 2 Treasuries. IMO.
Thanks for the article, Mish. I’m shocked and disgusted, having just read another blog: http://wolfstreet.com/2017/07/04/us-auto-sales-sag-hyundai-meets-carmageddon/
The Commerce Dept. should get sued over their falsehood. Haven’t we had enough of this?!? Just GM’s inventories should account for >2%. WTH is going on?!?