Earlier this year we wrote a Thematic piece on autos arguing that we would see auto
companies cut prices to move inventory, idle plants and produce fewer cars. We have
already seen a slowdown in car sales, and some manufacturers have guided to lower
production this year. This is in line with our view.
Currently, most of our US leading indicators are positive. Some of this is attributable to
market euphoria, as stocks, bonds, credit spreads and the yield curve have all contributed
positively. From a more fundamental standpoint, we have seen building-permit growth slow.
The slowdown we’ve seen in the last six months in autos and housing is worrisome.
Auto sales have rolled over from a high level, as you can see from the chart on the left. As
you can see from the chart on the right, the six-month change in autos and housing is very
negative. Previous occasions where the six-month change was as negative was in 1989,
a year before the 1990 recession, 1995 in a mid-cycle slowdown, 2000 before the 2001
recession and 2006 before the financial crisis.
We will follow our leading indicators and recession signals, but we would be remiss not to
point out the headwinds coming from housing and autos.
(Click image to enlarge.)
Source: Bloomberg, Macrobond and Variant Perception