Automakers Are Having a Record Year, but Here’s a Trend that Should Worry Them
U.S. auto sales closed out the summer on a positive note, topping estimates and casting some rosy light on the health of the American consumer. Recording its best August since 2003, the auto industry is on pace to sell 17.8 vehicles in 2015, well ahead of expectations of 17.3 million. If the numbers hold up, 2015 will be the best year ever for U.S. auto sales, beating the 17.4 million mark set in 2000.
The general consensus is that auto industry is in pretty good shape these days. Gas prices and interest rates are low, boosting the market for cars and light trucks. More than 2 million jobs were added to the U.S. economy in the past year, and more jobs is usually good news for auto sales. The unemployment rate has been trending lower for five years, sitting at a relatively healthy 5.3 percent in July.
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As with any statistic, though, there’s more than one way to look at the situation. Sure, auto sales are climbing as the economy gets stronger and more Americans hit their local car dealers’ lots. At least to some degree, though, higher auto sales should be expected just as a result of U.S. population growth. And those rising monthly sales figures are masking a continuing trend that is more worrisome for the auto industry: per capita auto sales are still in a long-term decline, even including the solid growth the industry has seen since the end of the recession. Doug Short at Advisor Perspectives did the math and made a graph:
According to Short’s analysis, the peak year for per capita auto sales in the U.S. was 1978. As the red line in the graph shows, the trend is negative since then.
In the graph, per capita auto sales in January, 1976, were defined as 100; the readings in the index since then are relative to that 1976 sales level. As you can see, the index moves higher until August of 1978, when per capita auto sales were up nearly 20 percent over 1976. Since then, per capita auto sales have fallen, reaching a low in 2009 that was nearly 50 percent lower than 1976. Since 2009, per capita auto sales have risen nicely, but are still more than 15 percent below peak.
What could explain the negative trend? Two factors come to mind. First, demographics. It has been widely reported that the millennial generation is less interested in owning cars for a variety of reasons, ranging from a weak economy to a cultural shift away from suburban life. However, the data on millennial car purchases is ambiguous; recently, millennials have started buying cars in volumes that look a lot like their elders. And even if millennials are less interested in buying cars, their preferences can’t explain a shift that began in the 1970s, before they were born.
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The other factor that may explain the trend is income inequality. A study of car ownership by the Carnegie Foundation found that countries with higher income inequality have fewer cars per capita. The logic is simple: As more income is claimed by the wealthy, there’s less to go around for everyone else. And that means there’s less money for middle and lower income groups to buy and maintain automobiles, among other things.
Here’s a chart of the Gini index for the U.S. since 1947. (The Gini Index is a widely-used measure of income inequality. A higher Gini number means higher inequality.) Note that the Gini reading started climbing in the late ‘70s – the same time when per capita car ownership in the U.S. began to fall.
This chart tells us, not for the first time, that the U.S. has experienced more income inequality since the 1970s. Combined with the per capita auto sales data above, it suggests that as the rich have gotten richer and everyone else has struggled to keep up, car ownership has suffered. Although this is by no means proof of the relationship between income inequality and per capita car ownership over the last 40 years, it hints at an interesting theory – and suggests that the auto industry has good reason to be concerned about growing inequality in the U.S.
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Don’t Make This Surprisingly Common Credit Mistake
Checking your credit report regularly is a basic rule of personal finance. More than one in three Americans has failed to follow that rule — they’ve never looked at their report, according to a new study from Bankrate.com.
The report finds that 35 percent of all Americans have never reviewed their credit reports, and 14 percent check less than once a year. Senior citizens are the biggest slackers, with 44 percent saying they’ve never checked their report, followed by 41 percent of millennials.
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Your credit report is the foundation of your credit score, a key number that landlords, employers and lenders use to measure financial responsibility. Having a good credit score is critical for financial success because it gets you access to lenders’ best rates and terms, which can save you thousands of dollars each year.
By law you are entitled to access your credit reports from each of the three major credit-reporting companies — Experian, TransUnion and Equifax — for free once every 12 months. You can do that at AnnualCreditReport.com.
The Bankrate survey found that about half of Americans have reviewed at least one of their credit reports within the past year, and a quarter of Americans review them more than once a year.
“Monitoring your credit goes well beyond scanning a three-digit number,” Bankrate credit card analyst Jeanine Skowronski said in a statement. “Americans need to thoroughly review their credit reports for errors or signs of fraud. They also need to understand what factors, like missed payments or high debt-to-credit ratios, are driving their credit score in order to improve it.”
If you don’t know what’s on your credit reports, now is a good time to find out.
Mother’s Day: Shop Tuesday for Best Deals
Looking to get a deal on a Mother’s Day gift this year? Shop this Tuesday.
That’s the day you’ll find the most coupons and discounts, according to an analysis by Savings.com of traffic and deals for Mother’s Day over the past five years. The best part, you don’t even need a coupon for many of the bargains, which tend to be heavily promoted.
One category where you’re less likely to save: Flowers. Savings.com found that prices have been steadily increasing for Mother’s Day bouquets, but purchasing a few days early from your supermarket or local florist will yield the best value. About two-thirds of consumers who plan to spend money for Mother’s Day will buy flowers, according to the National Retail Federation.
Families are planning to spend more than ever honoring their moms this year: The average American plans to shell out $172.63, up almost $10 from last year. That’s the highest amount since the NRF began its survey in 2003.
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The survey found that 80 percent of consumers would buy their mother a card. Mother’s Day is the third-largest card-sending holiday in the United States, with 120 million cards exchanged each year, according to Hallmark.
About a third of shoppers said they’d buy their mom clothing or apparel, and another they’d said they’d buy jewelry, according to the NRF
When it comes to shopping venues, department stores were the most popular destinations (cited by 33 percent of consumers), followed by specialty stores (28 percent) and discount stores (25 percent). A quarter of shoppers said they’d buy gifts online, down from 29 percent last year.
4 Reasons the Fed Won’t Raise Interest Rates in June
It is no surprise that the Fed didn’t take action on interest rates at the April Federal Open Market Committee meeting. The question of interest to the market is whether the Federal Reserve has revealed some clear signal in its statement about the timing of the future rate increase. Even though the Fed did not change its forward guidance on rate increases from the March statement, we can discern what the Fed has on its plate. Four aspects of the economy stand out:
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- The latest GDP data show worse-than-expected growth at an annualized 0.2 percent during the first quarter of 2015, compared to 2.2 percent in the last quarter of 2014.
- The strong U.S. dollar has continued to weigh on exports. Net exports in the first quarter stayed unchanged (0.0 percent growth) year-over-year, compared with 18.6 percent growth in the fourth quarter of 2014.
- Inflation has continued to stay way below the central bank’s 2 percent target. The price index for personal consumption expenditure (PCE), the measure of inflation preferred by the Fed, showed a 0.3 percent year-over-year increase in the first quarter, much lower than the growth rate of 1.1 percent in the fourth quarter of last year. Core PCE inflation, which excludes volatile prices of food and energy, reached 1.3 percent, compared with 1.4 percent in the last quarter.
- The improvements in the labor market, the other mandate of the Federal Reserve besides inflation, also slowed. Only 126,000 employees were added to nonfarm payrolls in March, compared to 264,000 in February and 201,000 in January.
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In all, the U.S. economy is growing more slowly than anticipated with some headwinds that may last for a while, such as the strong dollar. Both measures of the Fed’s dual mandate, price stability and maximum employment, remain below the Fed’s target. Normally this would call for an accommodative monetary policy, postponing the rate increases until later in the year. Rather than starting rate increases at the June FOMC meeting, the liftoff in September instead is more likely.
This story originally appeared at the American Institute for Economic Research.
How IRS Protects ID Thieves
Millions of Americans have fallen victim to ID theft during tax season, when fraudsters file false returns in an attempt to steal other people’s refunds.
Victims face delays in getting their real refunds, and paperwork nightmares that can drag on for months. In an attempt to survey the damage, some have asked the IRS for a copy of the fake returns, but Bloomberg reports that the agency has denied such requests, despite consumer-protection regulations intended to help victims in these situations.
The rules protecting consumers apparently conflict with tax laws that prevent its agents from sharing bogus returns and impose a penalty of up to five years in prison and a $250,000 fine for IRS workers who violate that law. “Employees face the specter of felony charges for giving out private details — including, possibly, those of the identity thieves — to those who aren’t authorized,” according to Bloomberg.
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Tax refund fraud has ballooned in recent years. While electronic filing has made the tedious process of filing taxes more bearable for consumers, it has also made it easier for criminals to scam the system by filing phony returns using stolen Social Security numbers. Scammers bilked the IRS out of $5.8 billion in fraudulent tax refunds in 2013, a number auditors expected would climb much higher in the most recent tax season. (Numbers haven’t yet been released for 2014 returns).
Electronic fraud became such a problem this year that TurboTax briefly suspended state returns for customers in February to deal with ID theft issues.
If the IRS is of limited help to victims, that’s all the more reason to make sure your information is protected. You can find some tips to reduce your risk of ID theft here.
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DARPA Has Developed a Bullet That Can Turn in Mid-Air
The U.S. Department of Defense has developed a bullet that can change direction in mid-air to ensure it hits its targets.
DARPA’s self-steering bullet EXACTO (Extreme Accuracy Tasked Ordnance) adjust in flight to hit moving targets.
Called the Extreme Accuracy Tasked Ordnance (or EXACTO), the .50 caliber bullet is meant for use in combat in areas such as Afghanistan, where visibility and changes in wind and weather can throw bullets slightly off their course, according to an article in Popular Science.
How the ammunition works is, of course, secret. A video put out by DARPA shows the bullet adjusting its trajectory to hit a moving robot target.
"This live-fire demonstration from a standard rifle showed that EXACTO is able to hit moving and evading targets with extreme accuracy at sniper ranges unachievable with traditional rounds," said DARPA program manager Jerome Dunn, in a statement. "Fitting EXACTO's guidance capabilities into a small .50-caliber size is a major breakthrough and opens the door to what could be possible in future guided projectiles across all calibers."
Read the full article in Popular Science here.