Auto Sales
Automakers are among those benefiting from improving household balance sheets, which is helping support sales beyond car-owners’ need to replace older models. Cars and light trucks sold at a 15.3 million annualized rate in February, capping the best four months since 2008.
“In addition to the pent-up-demand story that we have in terms of replacement, the housing-sector recovery is important too,” Jenny Lin, senior U.S. economist at Ford Motor Co., said during a Feb. 1 sales teleconference. “That makes the household balance sheet a lot better and that would improve the wealth effect here.”
Central bank officials are looking to spur the expansion by holding interest rates low, thereby stimulating equity and real- estate markets and bolstering household wealth. The Federal Open Market Committee in January affirmed plans to keep buying $40 billion per month in mortgage bonds and $45 billion in Treasuries.
“Even if the interest rate channel is less powerful right now than it was before the crisis, asset purchases still work to support economic growth through other channels, including by boosting stock prices and house values,” Fed Vice Chairman Janet Yellen said earlier this week. “The resulting improvement in household wealth supports greater consumption spending.”
More Borrowing
As household wealth improves, Americans are gaining confidence to borrow. Today’s flow of funds report showed household debt increased at a 2.4 percent annual rate from October to December, the biggest advance in almost five years. Mortgage borrowing fell at a 0.8 percent pace, the smallest decrease since the first three months of 2009, the last time it rose. Other forms of consumer credit, including auto and student loans, climbed at a 6.6 percent pace, the most in five years.
Total non-financial debt increased at a 6.4 percent annual pace last quarter, led by an 11.2 percent advance by the federal government and an 8.7 percent gain among businesses. State and local government borrowing dropped at a 3.7 percent pace.
Gains in pay are helping consumers meet their loan payments even as debt climbs. Mortgage and consumer-loan payments in the third quarter amounted to the smallest share of after-tax income since 1983, according to Fed figures issued in December. The debt-service ratio was 10.6 percent of disposable income from July to September. Five years earlier, the figure peaked at 14.1 percent.