ABA Banking Journal - August 2014 - (Page 8)

the economy BY MEKAEL TESHOME Auto outlook mostly upbeat AUTO DEMAND LIKELY TO KEEP PACE WITH POPULATION strong year ahead, with vehicles and parts pro270 duction on track to rise at a double-digit pace in the third quarter. Directly employing more than 840,000 people, and perhaps just as many peo250 Vehicle registrations, millions ple indirectly, the auto sector is a critical part of Population over age 16, millions U.S. manufacturing. With the traditional summer 230 factory shutdown season upon us, the industry appears to be on the leading edge of a positive 210 next few years. Auto industry economists expect vehicle sales 190 of 16 million units in 2014 and 16.4 million units in 2015, or growth of 3.3% and 2.5%, respec170 tively. Key cyclical boosts to auto sales include an improving labor market, higher stock prices, higher home prices, low interest rates, and stronger 150 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 household balance sheets. The positive outlook is Sources: Bureau of Transportation Statistics; Census Bureau reinforced by exceptionally strong data recently; at 17 million units at a seasonally adjusted annual rate, vehicle sales in June were the strongest since 2006. years, it is unlikely that number will Long-term demand drivers are favorable to the outlook for auto sales. The get all the way back to 40%. ratio of auto registrations per driving age population has come down somewhat Finally, the housing recovery's abilfrom the boom years, as millennials delayed acquiring licenses or purchasing ity to lift auto sales may have lost cars. Yet there is no indication that they will forgo vehicle purchases entirely. steam. Marginal increases in auto Continued economic recovery is lifting the ratio of registrations to driving age sales are positively correlated with population. Even though long-term population growth is expected to slow to housing starts, but this effect dimin0.5% per year-from about 1% in the previous 10 years-and given that the regishes above 1.1 million units. Even istrations-to-population ratio has increased over the years, the long-term outlook though homebuilding is currently for auto sales remains upbeat. below this threshold, it is expected Auto dealers believe that lost sales during the recession and weak recovery to increase only slowly and will likewere, for the most part, delayed, not gone; hence they anticipate a stronger ly remain under 1.1 million units bounce-back from the unleashing of pent-up demand. Assuming the trend rate until 2016. As a result, incremental of new vehicle sales is about 16 million units annually, and because sales averimprovements in housing construcaged about 13.3 million units between 2007 and 2013, sales of some 16.5 miltion in the near term are unlikely to lion were delayed-much of that waiting to happen as jobs and income prospects be followed by significant improveimprove for consumers. ments in auto sales. This optimism is tempered among producers. Although the age of the U.S. vehicle fleet is at a record high of 11.4 years, quality and durability improveMekael Teshome is an economist ments over the years have been causing it to rise secularly. This suggests that a at The PNC Financial Services portion of the lost sales was likely truly lost. Typically, about 40% of vehicles on Group, Pittsburgh, Pa. This article the road are of prime replacement age or 10 to 15 years old. Currently, about is a condensation of a longer report. Find it at 50% are of prime replacement age. Because of tighter credit than in the boom http://tinyurl.com/PNC-auto-outlook 8| ABA BANKING JOURNAL | AUGUST 2014 CAR KEY PHOTO: SHUTTERSTOCK.COM The U.S. automotive industry is gearing up for a http://www.SHUTTERSTOCK.COM http://tinyurl.com/PNC-auto-outlook

Table of Contents for the Digital Edition of ABA Banking Journal - August 2014

Chairman's View
Editor's Column
The Economy
Bank Notes
Picture This
Community Banking
Why HCE could be a big payment plus for banks
Rethinking the branch experience
Social media success not all about "followers"
Compliance Clinic
Around the ABA
Legal Issues
First Person

ABA Banking Journal - August 2014

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